Private ruling: Capital gains tax - not in common ownership - plan of consolidation - ownership interests
Date of advice: 28 September 2016
Published: November 2016
Ruling period: Income year ending 30 June 2017 | Income year ending 30 June 2018 | Income year ending 30 June 2019 | Income year ending 30 June 2020; and | Income year ending 30 June 2021.
Date scheme commenced: 1 July 2016

Ruling: Q1: Will a capital gains tax event occur for you when your property is amalgamated under the 'not in common ownership' (NICO) plan of consolidation? | A1: No. | Q2: Will capital gains tax event occur for you when the titles for the proposed Lots C, F and I are transferred out of the NICO title into your name? | A2: No.

Relevant facts and circumstances: You are the Trustee of the Trust. You are the owner of the following properties: • Property A; and • Property B. Your associate (Person 1), has ownership interests as joint tenants with their spouse (Person 2) in units X and Y located on Property C. In addition to being a joint tenant in the units as listed above, Person 2 also has sole ownership interests in units W and Z located on Property C. You, and the other property owners being Persons 1 and 2, intend to develop Properties A, B and C (the three properties), by amalgamating the properties, and then subdividing the amalgamated properties into a specified number of lots, with an apartment to be constructed on each of the new lots. You and the other property owners have engaged the services of a surveyor (the Surveyor) to prepare a NICO plan of subdivision (the Plan). Pursuant to the Plan, it is proposed that new lots will be created on the three original properties, and upon registration of the Plan new titles will be issued for each of the new lots. The Surveyor prepared a Title Overlay Plan (the Overlay Plan) which outlines how the proposed new lots will be located the three original properties. The Overlay Plan provides that Lots C and F will be located on Property A and Lot I will straddle both Property A and B. The building permit for the construction of the apartments on the proposed lots has been granted, with construction of the apartments to commence shortly. The apartments are currently being offered for sale off the plan. . The NICO plan of the subdivision will be lodged when the construction of the apartments is finished. The NICO plan of subdivision must be registered by mid to late XXXX. It is intended that once the apartments have been constructed, and the NICO plan has been registered, the titles for Lots C, F and I will be transferred from the NICO title into your sole name Assumptions This ruling has been prepared on the basis that the following will occur during the period covered by this ruling decision: • You and Persons 1 and 2 will amalgamate Properties A, B and C under a NICO plan • The NICO plan will be lodged with the Registrar of Titles to reflect the amalgamation of the three properties • The Registrar of Titles will issue a NICO title for the lot as consolidated on the plan • Once the NICO title has been registered, the titles will be issued for the newly created lots; and • The title for Lots C, F and I, which are located on either or both of Properties A and B, will be transferred from the NICO title and will be registered solely in your name.

Relevant legislative provisions: Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Section 104-10

Reasons for decision: Summary: Summary The amalgamation of the properties under the NICO title is not considered to be a CGT event. Therefore, as CGT event A1 will not occur when your property is amalgamated under the NICO title, you will continue to have the same ownership interest in your original properties after the issuing of the NICO title. No other CGT event will occur upon amalgamation of the properties and the registration of the NICO title. Detailed reasoning CGT event A1 happens if you dispose of a CGT asset (subsection 104-10(1) of the ITAA 1997). 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 law. Generally, CGT event A1 will happen when the titles of two or more properties that are owned by different entities are merged. This is because each co-owner acquires an interest in the property previously owned by the other entity as a result of the merger. However, a NICO title does not involve co-ownership of land in the generally understood sense (that is, a tenancy in common or joint tenancy). The NICO title recognises that each proprietor continues to own the land described in their previous title deed, while requiring all of the owners in the NICO title to agree to any subsequent transfer of any part of the amalgamated land. Similarly, subdividing land does not result in a CGT event if you retain ownership of the subdivided blocks. Therefore, you do not make a capital gain or a capital loss at the time of the subdivision. In your case, you own Properties A and B and Persons 1 and 2 have ownership interests in Property C. It is the intention of you and Persons 1 and 2 to amalgamate the three properties under a NICO title. When the amalgamation occurs under the NICO title it is considered that there will be no change of your ownership in your original properties. Therefore, CGT event A1 will not happen and the original properties owned by you before the issuing of the NICO title will continue to be owned by you after the issuing of the NICO title. No other CGT event will occur when the three properties are amalgamated or when the NICO title is registered. Summary A CGT event will not occur for you when Lots C, F and I are transferred from the NICO title solely into your name as there will be no change in your original ownership interests when the transfer occurs. Detailed reasoning As outlined above, for CGT event A1 to occur, there must be a change of ownership from one entity to another entity. In this case, the properties owned by you and Persons 1 and 2 will be amalgamated under a NICO title with all of your names on the NICO title. The amalgamated properties will be subdivided with apartments to be constructed on the newly created lots, with titles to be issued for all of the new lots. Included in the new lots will be Lots C, F and I. Lots C and F will be located on the original Property A and Lot I will straddle the original Property A and Property B. It is intended that Lots C, F and I will be transferred from the NICO title solely into your name. As outlined above, after the properties are amalgamated on the NICO title you and Persons 1 and 2 will each retain your original ownership interests. Lots C, F and I will be located on properties that you owned prior to the amalgamation of the properties under the NICO title. Therefore, when Lots C, F and I are transferred from the NICO title on which you and Persons 1 and 2 are listed as owners of the amalgamated properties into your sole name there will not be a change of ownership. As such, there will be no CGT event when this occurs.