Edited version of private ruling

Authorisation Number: 1011704210172

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Ruling

Subject: CGT event A1

Question 1

Will CGT event A1 occur under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) when all of the joint rulees transfer legal ownership of their assets to rulee 1?

Answer

No.

Question 2

Will CGT event A1 occur under section 104-10 of the ITAA 1997 when rulee 1 transfers legal ownership of the assets back to the joint rulees?

Answer

No.

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on

1 July 2010

Issues not addressed in ruling:

We have limited our answer to the matters raised in your application. There may be other matters that you need to consider.

Should you need a private ruling on these or any other matters, you will need to lodge another application.

Relevant facts and circumstances

The rulees are rulee 1 and the joint rulees.

A property was constructed prior to 20 September 1985 and the property was subsequently strata titled.

Rulee 1 and the joint rulees propose to develop the common property and separate the original property from the development.

It is intended that the joint rulees will transfer title to their assets to rulee 1. Each joint rulee will retain the right to the asset that was owned. Upon registration of the activity, rulee 1 will transfer each of the assets back to the joint rulees.

The applicant advises that there will be no change in the beneficial ownership of the assets, before and after the development.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 104-10(2)

Income Tax Assessment Act 1997 Paragraph 104-10(2)(a)

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Transfer of ownership to rulee 1

Section 104-10 states that CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity. However paragraph 104-10(2)(a) states that a change of ownership does not occur if you stop being the asset's legal owner but continue to be its beneficial owner.

In this case, the joint rulees will transfer their assets to rulee 1 and they will become common property. The legal title will vest in rule 1 in its capacity as agent for the joint rulees.

Prior to the transfer, each joint rulee has a legal ownership interest in their own asset. When each joint rulee transfers their asset to rulee 1, all of the assets will become common property. The joint rulees will continue to retain their existing rights associated with their asset.

In deciding whether there has been change in the beneficial ownership of the asset, the following facts are relevant:

· each joint rulee will retain the right in the asset that was originally owned

· the change in legal ownership will be temporary

· it will only be undertaken in order to comply with State legislation, and

· the legal ownership will revert to the joint rulees after the activity is registered.

It is therefore considered that there will be no change in the beneficial ownership of the assets. Consequently CGT event A1 will not happen due to the exclusion in paragraph 104-10(2)(a) when the joint rulees transfer their assets to the rulee 1.

Conclusion

No CGT event will happen when the rulees transfer the legal title to their apartments to the body corporate, as there has been no change in the beneficial ownership of the apartments. The exclusion in paragraph 104-10(2)(a) of the ITAA 1997 applies.

Transfer of ownership back to the original owners

As previously discussed, in the current situation the joint rulees are proposing to transfer their assets to rulee 1 to become common property.

It is considered that there will be no disposal or change of ownership for the purposes of section 104-10. This is because the beneficial ownership of the assets will not change when the legal ownership is transferred to rulee 1. When the assets are transferred back to the joint rulees, those joint rulees already have a beneficial ownership of the assets and all that is happening is the legal ownership is being returned to them.

Consequently, section 104-10 does not recognise that a change in ownership has ever occurred, and the joint rulees are taken to have continued to own the assets. Therefore CGT event A1 will not happen when the legal ownership of the assets is returned to the joint rulees.

Conclusion

CGT event A1 will not happen in relation to the assets when legal ownership is transferred back to the joint rulees. This is because no change in ownership will have occurred under the first transfer for the purposes of section 104-10 and the joint rulees are taken to have continued to own the assets.