Private ruling: CGT - disposal of common property
Published: May 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the capital gain assessable to the Strata Plan? | A1: No

Relevant facts and circumstances: You are a Strata Plan registered in NSW. You hold common property, including a caretakers cottage. You want to subdivide the common property and sell the caretakers cottage and portion of land it is situated on.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 102-5(1)

Reasons for decision: Detailed Reasoning - Detailed reasoning: Taxation ruling TR 97/4 sets out at paragraphs 24 and 25 the Commissioner's view on the ownership of strata title units and ownership of common property: | Detailed Reasoning - Ownership of stratum units: 24. Stratum units are owned both legally and, unless held on trust, beneficially by each individual stratum unit owner. | Detailed Reasoning - Ownership of common property: 25. The legal ownership of common property varies under different State and Territory Acts. However, beneficial ownership is universally vested in the stratum unit owners: … (ii) in New South Wales the ownership is vested in the body corporate as agent for the proprietors as tenants in common in proportions equal to their lot entitlements ( Strata Titles Act 1973 (NSW)) The treatment of common property is discussed in paragraph 17 of Taxation Ruling IT 2505, as follows: 17. The assessability of moneys received in respect of the common property, for example, fees derived from the letting of shops situated on the ground floor of a block of apartments where the ground floor forms part of the common property, varies according to the relevant State strata title legislation. In those States where the common property is vested in the proprietors, viz. Queensland, Victoria, Tasmania, Western Australia, or vested in the body corporate as agent for the proprietors, viz. New South Wales, the income derived from the use of the property constitutes assessable income of the individual proprietors. This is considered to be so even in those States where the strata title legislation prevents a proprietor from ever taking physical receipt (other than on winding-up) of the moneys, and where the moneys are paid directly into one of the body corporate's funds. In these cases, proprietors receive a benefit in that the amount needed to be levied on the proprietors by the body corporate as contributions to the administrative or other fund would be reduced by the rental income applied directly to the fund. In your circumstances, while you are governed by strata title legislation in your State; you can sell part of the common property on behalf of the owners of that common property, the individual lot owners. Therefore, you are merely an agent for the principals, that is, the lot owners, and when you sell the common property CGT Event A1 has occurred and is assessable to the lot owners in accordance with IT 2505. The Commissioner's view is that it is the lot owners who have disposed of the asset which is part of the common property and who have made a capital gain from that sale. Therefore, the capital gain from the sale of the parking lots is assessable to the lot owners. The individual lot owners may be entitled to the 50% discount on their capital gain, subject to the conditions of this discount, and based on their individual ownership circumstances.