Edited version of private ruling

Authorisation Number: 1011717672177

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Ruling

Subject: Capital Gains Tax

Question and Answer

Is the amalgamation of a portion of your property with two of your neighbour's properties subject to Capital Gains Tax?

Yes.

This ruling applies for the following period

1 July 2010 to 30 June 2012

Relevant facts and circumstances

You are subdividing your property into two portions.

You propose to amalgamate the rear x.x acres of your property with two of your neighbours.

You will keep the remaining land and main residence

The individual values of the land contributed by all neighbours will be assessed individually and as a percentage of the value of the new x acre block to determine your ownership entitlement.

A new title for the x acre block will be created. The title will either be in the name of a company or all the property owners.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

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

Income Tax Assessment Act 1997 Section 116-20

Income Tax Assessment Act 1997 Subsection 116-20(1)

Income Tax Assessment Act 1997 Subsection 116-30(1)

Reason for Decision

You make a capital gain or capital loss, if and only if, a Capital Gains Tax (CGT) event happens to a CGT asset.

Under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) CGT event A1 happens if you dispose of CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law.

You are subdividing your property into two portions, one being the land attached to your main residence and the other comprising of x.x acres which will be amalgamated with your neighbour's subdivided portions (x.x acres and x.x acres) to create a new block comprising of x acres.

The individual values of the land contributed by all neighbours will be assessed individually and as a percentage of the value of the new x acre block to determine your ownership entitlement.

Generally, a CGT event A1 will happen when the title to two properties, or more, owned by different entities is merged. This is because each co-owner acquires, as a result of the merger, an interest in the land previously owned by the other/s.

When you subdivide your property the portion you are amalgamating with your neighbours will have a change in title name, therefore it is considered a CGT A1 event.

Division 116 of the ITAA 1997 explains how to work out the capital proceeds from a CGT event. Section 116-20 provides some general rules about capital proceeds. Subsection 116-20(1) states that the capital proceeds from a CGT event are the total of the money a person has received, or is entitled to receive and the market value of any other property that the person has received, or are entitled to receive (worked out at the time of the event), in respect of the event happening.

Where you do not receive any capital proceeds from the CGT event, then subsection 116-30(1) of the ITAA 1997 will apply. The subsection states that if you have received no capital proceeds from a CGT event, then you are taken to have received market value of the CGT asset that is the subject of the CGT event, worked out at the time of the event.

You will be deemed to have received the market value of the land at the time it is transferred.