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Edited version of private advice
Authorisation Number: 1052269797460
Date of advice: 8 July 2024
Ruling
Subject: CGT - transfer of title
Question
Did Capital Gains Tax (CGT) event A1 happen to you due to the transfer of title of the disputed land to your neighbour?
Answer
No. In these circumstances, CGT event A1 has not happened to you because you were not the owners of the disputed land just before the transfer of title.
The Commissioner has acknowledged in ATO Interpretative Decision ATO ID 2004/731 that a person with a right to adverse possession of land is the real owner of it. That means, your neighbour became the owner of the disputed land when they became entitled to make the adverse possession claim. It does not matter when the claim was actually made.
Further, amalgamating titles under a 'not in common ownership' plan of consolidation does not change the underlying ownership of the adjoining parcels of land. ATO Interpretative Decision ATO ID 2005/367 confirms that CGT event A1 does not happen in such cases. Therefore, your use of a 'not in common ownership' title amalgamation to transfer the disputed land to the neighbour does not cause CGT event A1 to happen.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
February 20XX, you jointly purchased land, lot 1 of a 3-lot farm subdivision.
June 20XX, settlement occurred.
After settlement, a neighbour contacted you regarding an adverse possession claim on a small area of land on the boundary of your property (the disputed land) which you were unaware of.
A lawyer verbally advised you that the claim was valid and successfully defending the claim would be difficult and it wouldn't make sense financially as the steep wooded gully on a rural property has minimal commercial value. (The neighbour had met the threshold for making an adverse possession claim some years earlier.)
You agreed to a simplified process with the neighbour to transfer the title of the disputed where the neighbour would pay all costs. The transfer was undertaken in two steps.
First, the titles to your land and that of your neighbour were amalgamated onto one title as a 'not in common ownership' amalgamation.
Second, the amalgamated title was then split so that the disputed land was attached to your neighbour's title and excised from yours.
The clients would receive no payment for the land that was excised from your title.
The vendors lawyer notified the State Revenue Office Victoria that no payment was made but listed the nominal value of $XX,XXX for stamp duty purposes, calculated as a pro-rata proportion of the council rates valuation.
In May 20XX, the transfer process settled.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
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