Private ruling: CGT - equitable ownership interest and partition agreement
Date of advice: 14 March 2022
Published: June 2022
Ruling period: The years from 1 July 20XX to 30 June 20ZZ
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does your Partition Agreement (the agreement) give rise to an ownership interest in property for capital gains tax (CGT) purposes? | A1: Yes. The agreement provides sufficient evidence and detail to support that Person A, Person B, Person C and Person D all have an equal beneficial ownership interest in the property for CGT purposes. | Q2: Will you have a CGT event on XX July 20YY when you transferred your ownership in Lot B? | A2: Yes. When you subdivided the block of land it became two separate assets for CGT purposes. As both Person A and Person B (spouses AB), and Person C and Person D (Spouses CD) had equal beneficial ownership of the original block, when you transferred Lot B to Spouses CD, you disposed of your 50% interest in Lot B. Conversely, Spouses CD had a CGT event for the disposal of their 50% interest in Lot A. As the transaction was not arm's length, the market value of the property is used to calculate the capital gain at the time of the CGT event.

Relevant facts and circumstances: On XX October 20XX you entered into a partition agreement with the following relevant terms: • Person A, Person B, Person C and Person D (the parties) agreed to purchase a property for $XXX,XXX.XX. • Due to Spouses CD's inability to secure finance, the property would initially only be in spouses AB names but held for the benefit of the parties in equal shares, as tenants in common, until such time as the property could be subdivided and separate titles obtained. i.e. each person held a 25% interest in the property. • As soon as practicable the property would be partitioned and a repayment arrangement established in relation to the mortgage, which was held only by you. • The partitioning was to occur as follows: ­ Spouses CD would receive Lot A, being the northern half of the property ­ Spouses AB would receive Lot B, being the southern half of the property. • The parties would contribute equally to the purchase cost of the property as well as all other costs relating to the property in equal shares. • Each party would be responsible for all costs associated with the construction of their own house and improvements on their own lot. • Upon completion of the development the parties agree to do all things necessary to register a strata plan and transfer the title to each respective lot to the party entitled to the ownership of that lot. On XX November 20XX, you entered into a contract to purchase the property. Spouses CD originally appeared on the contract but were later struck from it. In July 20YY, the property was subdivided into the following titles: • Lot A, and • Lot B. Lot B settled to Spouses CD on XX July 20YY for a nominal value of $X. Stamp duty was paid on the transfer at half the market value of the property. Spouses CD are the parents of Person B. Person A and Person B are spouses.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 112-25 | Income Tax Assessment Act 1997 section 116-30 | Income Tax Assessment Act 1997 section 118-130