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Edited version of your private ruling
Authorisation Number: 1012521280017
Ruling
Subject: CGT - income
Question 1
Will any capital gain arising from the sale of property owned by you be assessable to you under section 102-5 of the Income Tax Assessment Act 1997?
Answer
No.
This ruling applies for the following period:
Financial year ended 30 June 2014
The scheme commenced on:
1 July 2013
Relevant facts and circumstances
You are a Community Association registered under the Community Land Development Act (1989).
Your members include the strata corporations registered under the Strata Titles Act 1973 (NSW) and individual proprietors.
You propose to sell property for a capital gain in the financial year ended 30 June 2014.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 102-5
Reasons for decision
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:
Ownership of stratum units
24. Stratum units are owned both legally and, unless held on trust, beneficially by each individual stratum unit owner.
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, you are registered under the Community Land Development Act (1989) which was modelled on the Strata Schemes (Freehold Development) Act 1973 and the Strata Schemes Management Act 1996. Many parallels exist between these pieces of legislation as Community Associations are similar to Strata Plans and the principals in the aforementioned taxation rulings will apply.
You are governed by legislation in your State and can sell property, including that considered a 'community development lot' as defined in section 3 of the Community Land Development Act 1989 on behalf of the owners of that property, the registered proprietors. That is, you are merely an agent for the principals, that is, the registered proprietors.
Therefore, when you sell the property CGT Event A1 will occur and any gain will be assessable to the registered proprietors in accordance with IT 2505. The Commissioner's view is that it is the registered proprietors who have disposed of the asset and who have made a capital gain from that sale. Accordingly, the capital gain from the sale of the property will be assessable to the registered proprietors.
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