Private ruling: CGT - acquisition - ownership
Date of advice: 10 November 2023
Published: 22 January 2024
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Did a capital gains tax (CGT) event happen to you when the property was partitioned and legal title to each sub-divided block was transferred between you and your sibling? | A1: Yes.

Relevant facts and circumstances: On XX/XX/20XX, you and your sibling purchased a property. The property was purchased equally with both names on the title. You demolished the existing dwelling on the property and then sub-divided the property into equal blocks of land. These blocks then became Property A and Property B. You arranged for a builder to construct identical dwellings on each block of land. You and your sibling continued to hold equal ownership for each block of land for the purposes of obtaining a bank loan. You enquired with several mortgage lenders and were refused a loan by most of these lenders. The final lender would only provide you with a loan if both your name and your sibling's name were listed on the property title. You were advised by a lawyer that stamp duty would not be payable. In XX/XX/20XX, the builds were complete, and were valued at the same amount. You considered Property A to be your property and your sibling considered Property B to be their property. You consulted with your lawyer for advice on removing each other's names from each property title so that you could each take ownership of a property. On XX/XX/20XX, a deed of partition was created. This was granted around XX/20XX. You took ownership of Property A, and your sibling took ownership of Property B. There were no funds exchanged during this process. You were granted an exemption from stamp duty as you both took an equal partition of an asset. You were advised by your accountant that there were CGT implications on the transfer of title.

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 116-30

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset. All assets that were acquired since CGT commenced on 20 September 1985 are subject to CGT unless specifically excluded. Under section 104-10 of the ITAA 1997, CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of the law. Taxation Determination TD 92/148 Income tax: capital gains: is there a disposal and an acquisition where joint owners of a block of land subdivide that land into two smaller blocks with each owning one block? discusses joint owners each acquiring 50% individual interest in whole land prior to subdivision. If, after the subdivision, both owners continue to have 50% interest in the subdivided blocks, there is no acquisition or disposal for CGT purposes as there has been no change of ownership of the subdivided land. However, if, as a result of the transaction where each now has sole ownership of an individual block, each owner is taken to have disposed of his or her 50% interest in the subdivided block which is now owned by the other. There have been corresponding acquisitions by each owner from the other of that interest in land now owned by each of them which was previously owned by the other. In your case, you and your sibling purchased a block of land as joint tenants for the purposes of obtaining a bank loan. You demolished the existing dwelling and then proceeded to sub-divide the property and construct two identical properties, with one on each block. You each considered one of the properties to be your own and both your name and your sibling's names were on the title for each block of land. As you and your sibling purchased the property as joint tenants, you are treated as having equal shares in the asset. Removal of your name from the property title of Property B, and vice versa the removal of your sibling's name from the title of Property A, disposed of each of your legal ownership interests resulting in CGT event A1 occurring. As you did not receive any capital proceeds in relation to this event, it is deemed that you receive capital proceeds equal to the market value of the CGT asset. Consequently, you may have a capital gains tax liability despite no money or other consideration changing hands. You will be entitled to reduce any capital gain you have made by the 50% discount as you have held the property for more than 12 months.