Edited version of private advice

Authorisation number: 1052508129757

Date of advice: 18 February 2026

Ruling

Subject: CGT - transfer of strata units

Question

Will section 118-42 of the ITAA 1997 apply to disregard any capital gain made on the transfer of your ownership interest of property now known as unit 1 & 2 to the other co-owners?

Answer

Yes

Section 118-42 of the ITAA applies to disregard a capital gain or loss if you own land on which there is a building, and you subdivide the building into stratum units and transfer each unit to the entity who had the right to occupy it just before the subdivision.

In your circumstances you and your siblings purchased a block of land, many years later prior to the construction of the villa's you all entered into a written agreement that each villa built would be for the sole private use of each couple giving then a right to occupy. This agreement also advised that you would eventually subdivide the land when finances allowed. In late 20YY each villa was transferred to the couple who under the agreement had the right to occupy. You applied in MM 20YY to have a strata subdivision of the buildings on X Street, which you and your sibling owned as tenants in common, this application was approved on DD MM 20YY. You transferred your ownership in villa 1 & 2 to your siblings prior to this date, therefore section 118-42 of the ITAA 1997 applies to disregard any capital gain or loss related to this transfer.

The CGT A1 event will occur when you sell your strata unit

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You, your siblings and spouses:

•                     Person A and Person B

•                     Person C and Person D

•                     You and person F

purchased a vacant land at as tenants in common in equal shares x% ownership interest

Each couple then registered their ownership interest as joint tenants

The cost to purchase the land was x amount

You all applied for a home loan to fund the purchase of the land and were approved for x amount

Then each couple contributed x amount to make up the left over amount owning

No written agreement was entered into at the time of purchasing the land

On DD MM 19YY before the construction of the villas a written agreement was provided which detailed subdivision plans and rights to occupy amongst parties.

The villas where personally used by each couple as holiday homes and where never used as your main residence

The villas where never used to earn assessable income

Sometime in 20YY you all decided to subdivide the property into 3 individual blocks

Prior to the subdivision each villa was transferred to the co-owner who had the right to occupy

In or around DD MM 20YY the land was subdivided into 3 new assets under three stratum units

Each Stratum Villa and the parcel of land the then belonged to:

•                     Unit 1 Person A and person B at x%

•                     Unit 2 Person C at x%

•                     Unit 3 you and person F at x%

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-42