Private ruling: CGT - subdivision - dispose of ownership interest after subdivided
Date of advice: 23 July 2025
Published: 22 September 2025
Ruling period: 30 June 20XX
Date scheme commenced: DD MM YY

Ruling: Q1: Will CGT event A1 occur when the property is subdivided, and you transfer your ownership interest in one of the subdivisions is transferred to another person? | A1: Yes

Relevant facts and circumstances: On DD MM YY Person A purchased the property. Prior to settlement of the property Person B was nominated as co purchaser. The property ownership was as tenants in common with equal shares as of DDMMYY. On DD MM YY a contract order to build 2 workshops/factories in the property. On DD MM YY building plans for the construction of 2 workshops were provided. On DD MM YY a building permit was issued which advised that the building work must commence by a certain date and must be completed by a certain date. At no time was a written agreement or arrangement entered into or witnessed by a JP or legal representative. Person A and Person B discussed subdividing the land, before and after purchasing the land but did not finalise this. The land tax and water rates for entire property are issued to Person A on behalf of both owners and these bills are paid by both owners in equal shares. Person B passed away in 20XX, leaving their 50% legal and equitable share in the property to their spouse in the Will. In 20XX a letter was received from a Conveyancing services to advise that the permit to subdivide the land lodged originally by a family member could not proceed due to amended Town Planning drawings being approved after the due date and that a new application would need to be lodged. The deceased was removed, and their spouse added to the land title as of 23 January 2017.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-130

Reasons for decision: Detailed Reasoning - Detailed reasoning: Section 102-20 of the ITAA 1997 provides that you make a capital gain or loss as a result of a CGT event occurring to a CGT asset in which you have an ownership interest. For this reason, it is important to establish who is the owner of a CGT asset at the time a CGT event occurs. Subsection 104-10 (2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you dispose of a CGT asset when you either enter into a contract for its disposal, or where no contract exists, when the change of ownership occurs. Subsection 104-10 (4) of the ITAA 1997 explains when you will make a capital gain or capital loss from the disposal of your CGT asset. Section 118-130 of the ITAA 1997 states that for a dwelling that you acquire under contract, you have an ownership interest in it from the time when you obtain legal ownership of it until your legal ownership interest in the dwelling ends. | Detailed Reasoning - When you sell or dispose of an asset: If you disposed of your ownership interest assets during the year, such as property or shares, you need to work out your capital gain or loss for each asset. If you received no capital proceeds from a CGT event, you are taken to have received the market value of the CGT asset that is the subject of the event. The market value is worked out as at the time of the event. You are required to obtain a market valuation when transferring property or shares between related parties, such as family members. | Detailed Reasoning - Legal and beneficial ownership: The ATO considers that there are extremely limited circumstances where the legal and equitable interests are not the same and that there is sufficient evidence to establish that the equitable interest is different from the legal title. A person's legal interest in a property is determined by the legal title to that property under the property law in the State or Territory in which the property is situated. Where it is asserted that the beneficial ownership and legal ownership of a property are not the same, there must be evidence to show that the legal owner holds the property in trust for the beneficial owner. Relevant evidence includes information that evidences the intentions of the parties at the time the property was purchased or transferred from one legal owner to another, and evidence of contributions made by the parties towards the purchase price. Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners (TR 93/32) contains guidance on the issues involved where the equitable interest in a property may not follow the legal title. As stated in TR 93/32 paragraphs 38 to 41, It has been said that if the equitable interest does not follow the legal title, there is some basis for the profit/loss to be distributed on the equitable and not the legal basis. We will assume where taxpayers are related, e.g., husband and wife, that the equitable right is exactly the same as the legal title. The following trust concepts are considered by the Commissioner when assessing claims that equitable interest does not follow legal title: | Detailed Reasoning - Express trust: An express trust is one intentionally created by the owner of property in order to confer a benefit upon another. It is created by express declaration, which can be affected by some agreement or common intention held by the parties to the trust. For an express trust to be created it is necessary that there is certainty of the intention to create a trust, subject matter and the object of the trust. While trusts can be created orally, all State Property Law Acts contain provisions that preclude the creation or transfer of interests in land except if evidenced in writing. | Detailed Reasoning - Resulting or implied trusts: On the purchase of real property, a resulting trust may be presumed where the legal title that vests in one or more of the parties does not reflect the respective contributions of the parties to the purchase price. A resulting trust arises by operation of law and falls into two broad categories. One such category is where someone purchases property in the name of another. As noted by Gibbs CJ, in Calverley v Green [1984] HCA 81 :(Calverley v Green case). A trust is presumed in favour of the party providing the purchase money. If an individual purchases and then pays for a property, but legal title is transferred to another person at their direction, the presumption of a resulting trust arises - the property is held in trust for them. The law presumes that the purchaser, as the person providing consideration for the purchase intended to retain the beneficial interest, although the legal interest is in the others name. However, there are instances where this application may not apply, including: • where there is evidence of a specific intention to hold beneficial interest in the property for another person who contributed no amount, or a lesser amount, towards the purchase price. • where the presumption of advancement applies • where a court orders that property is held on trust (not relevant to your circumstances). | Detailed Reasoning - Presumption of advancement: The presumption of advancement is an equitable principle where a person puts property in the name of another person with whom they have a close familial relationship. The presumption only applies to transfers and purchases made by people who stand in particular relationships, including from parents to their children. The presumption of advancement does not apply from one sibling to another. | Detailed Reasoning - Application to your circumstances: You purchased land on DD MM YY. Prior to the purchase settlement it was decided that Person B was be a co-purchaser and was included in the property title in equal shares as tenants in common. This has been evidenced in documents provided DD MM YY. No evidence has been provided to show there was a resulting trust. Within months of the purchase settlement, you had building site plans to build two separate factories on the land. Each factory was to be individually and exclusively used by each of you, Factory one in which Person A decided to personally run his own business and Factory 2, which Person B rented this out to tenants. Person A paid all the expenses in relation to his business operation from Factory A and kept all the income, while Person B received all the income from their tenants for factory B, however, all the council rates such as land tax and rates were divided in equal shares between Person A and Person B, and both paid their share. All the documents provided support that both Person A and Person B, then Person A and Person C had both a legal and equitable ownership interest in the whole property as tenants in common from the settlement purchase date While you have provided documentation to show that there were to be 2 factories built on the land, you did not provide contemporaneous evidence of the intention of the parties that they each would have a 100% beneficial ownership interest in a specified portion of the land, with each party holding their interest in the other portion of land on trust for their sibling. There was also no contemporaneous evidence provided that included the terms of any arrangement/agreement in relation to the operations of these factories, how the combined council rates would be addressed etc. A CGT event will not occur when the property is subdivided. However, CGT event A1 will be triggered upon the transfer of your ownership interest in one of the newly subdivided lots. Any capital gain or loss you make from disposing of an interest in the land cannot be disregarded and must be included in your income tax return in the relevant income year. As the property was held for over 12 months, you can apply the 50% CGT discount to any capital gain you may incur upon the disposal of the property. For completeness, we note that your interest in the other subdivided property will comprise two ownership interests for CGT purposes. You will have a 50% ownership interest you obtained when the property was purchased, and the other 50% ownership interest which you will obtain when Person C transfers their interest in that property to you.