Private ruling: CGT - rollover
Date of advice: 16 December 2024
Published: 10 February 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to the capital gains tax roll-over under section 124-190 of the Income Tax Assessment Act 1997 (ITAA 1997) on the relevant units when the partition agreement is entered into? | A1: Yes.

Relevant facts and circumstances: You (Individual 3) purchased a property with your spouse and in-laws ("The Family"). The property was purchased as tenants in common in the below proportions. Individual 1 XX% Individual 2 XX% Individual 3 XX% Individual 4 XX% The intention for the Family was to rent the existing property and subdivide into five lots and build a number of new properties which would be retained by each of the Family in their relevant percentage interest. From purchase you had a clear interest in the eventual individual title to be received. These eventual properties were to become either main residences or rental properties of the Family. There is no enterprise or business activity but rather clear intention to retain to rent or reside in the eventual properties. As such, no ABN was ever registered for the Family and resultingly no GST has been claimed on any of the subdivision or construction costs. Throughout the planning process the subdivision allowed for several lots instead of the originally anticipated number. Demolition has occurred and construction of the lots has been completed. The proposed lots are expected to enter a Partition arrangement resulting in some lots to be held by everyone in their own right: You will enter into the partition agreement in the relevant income year. Strata title registration will occur after the partition agreement has been entered into.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-42 | Income Tax Assessment Act 1997 section 124-190

Reasons for decision: Summary: The Income Tax Assessment Act 1997 (ITAA 1997) provides for the availability of two capital gains tax (CGT) concessions in respect of strata title conversions: an exemption is available to the owner of the land in section 118-42 of the ITAA 1997 and optional roll-over relief is available to the persons entitled to occupy the units in section 124-190 of the ITAA 1997. Roll-over relief on a strata title conversion of a building is provided in subdivision 124-D of the ITAA 1997 to a person whose right to occupy a unit or units in a building is replaced by ownership of a stratum unit corresponding to the former unit. Section 118-42 of the ITAA 1997 states that if: (a) you own land on which there is a building; and (b) you subdivide the building into stratum units; and (c) you transfer each unit to the entity who had the right to occupy it just before the subdivision; a capital gain or capital loss you make from transferring the unit is disregarded. Under section 124-190 of the ITAA 1997 a roll-over is available if: (a) you own property (the 'original asset') that gives you a right to occupy a unit in a building; (b) the building's owner subdivides it into stratum units; and (c) the owner transfers to you the stratum unit (the 'new asset') that corresponds to the unit you had the right to occupy just before the subdivision. Taxation Ruling TR 97/4 Income tax: capital gains: roll-over relief for buildings subdivided under strata title law into stratum units and common property sets out the Commissioner's view on tenants in common subdividing a building and transferring their interests so that each tenant in common becomes a registered proprietor of a stratum unit. Roll-over relief is only available if, before the conversion process, the tenants in common entered into an agreement or understanding granting each tenant in common exclusive occupation (including an exclusive right of possession) of a particular unit. Roll-over relief is available under section 124-190 of the ITAA 1997 for such disposals if before the conversion process the tenant in common owns property that gives a right to occupy a unit in a building. Prior to conversion, tenants in common have, in the absence of an agreement or understanding granting each tenant in common exclusive occupation (including an exclusive right of possession) of a particular stratum unit, occupancy rights in relation to the whole building, rather than occupancy rights in relation to a particular stratum unit. | Detailed Reasoning - Application to your circumstances: Once the creation of the strata scheme has occurred, the roll over will apply to you as you each have exclusive rights to the corresponding lot. You will have exclusive rights to a unit. The CGT roll-over will apply to that unit.