| Disclaimer You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private advice
Authorisation Number: 1051941908724
Date of advice: 24 January 2022
Ruling
Subject: Transfer of interest in strata title unit - section 118-42 of the ITAA 1997
Question 1: Will section 118-42 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to disregard any capital gain you make from transferring your 50% ownership interest in the strata titled unit to the other individual?
Answer
Yes.
Question 2: Will your cost base for the 50% ownership interest in the strata titled unit transferred to you from the other individual be based on the market value of the unit on the date of transfer?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 20XX
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You and another individual acquired equal interests as tenants in common in a building consisting of two units.
You and the other individual agreed to occupy separate units.
You moved into one of the units.
The building was later subdivided by strata title.
You and the other individual then transferred their equal ownership interest to each other, resulting in each individual holding 100% ownership interest in their own unit.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 112-20
Income Tax Assessment Act 1997 section 118-142
Reasons for decision
Question 1
Section 118-42 of the ITAA 1997 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 case, you and another individual agreed that you would occupy one unit and they would occupy the other unit. The building was subsequently subdivided into strata titled units. After the building was strata titled, you transferred your 50% interest in one unit to the other individual and they transferred to you their 50% interest in your unit. Based on these facts, any capital gain or loss as a consequence of transferring your interest to the other individual is disregarded in accordance with section 118-42 of the ITAA 1997.
Question 2
Section 112-20 of the ITAA 1997 determines market value as the first element of your cost base or reduced cost base for a CGT asset at the time of acquisition where: you did not incur expenditure to acquire it; or some or all of the expenditure you incurred to acquire it cannot be valued; or you did not deal at arm's length with the other entity in connection with the acquisition.
In your case, you did not deal at arm's length with the other individual when they transferred to you their 50% ownership interest in your unit. Therefore, paragraph 112-20(1)(c) of the ITAA 1997 applies to deem this 50% portion of your cost base or reduced cost as market value at the date of transfer.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
