Edited version of private ruling

Authorisation Number: 1011758648360

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Ruling

Subject: Capital gains tax - body corporate - sale of common land

Question 1

Is any capital gain or capital loss on the sale of the common land disregarded?

Answer

No.

Question 2

Is a Capital gain or capital loss made on the granting of the right of way?

Answer

Yes.

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are the owner of a residential unit in a block that is strata titled. You purchased the unit some time after September 1999. You are an individual.

Your body corporate has entered into a contract to sell part of the common land owned by the strata title. That portion has been subdivided in preparation for the sale.

On settlement it is the intention of the body corporate to distribute the proceeds from the sale of the common land equally amongst all of the unit holders.

Your body corporate has also entered into a contract to sell a right of way, allowing access to the sold parcel of land.

On settlement it is the intention of the body corporate to retain the proceeds from the sale of the right way.

Relevant legislative provisions

Conveyancing and Law of Property Act 1884 (Tasmania),

Income Tax Assessment Act 1997 Section 104-10,

Income Tax Assessment Act 1997 Section 104-35,

Income Tax Assessment Act 1997 Subsection 109-5(1),

Income Tax Assessment Act 1997 Section 115-25,

Income Tax Assessment Act 1997 Subsection 115-25(3) ,

Income Tax Assessment Act 1997 Section 112-30 and

Income Tax Assessment Act 1997 Section 116-40.

Question 1

A strata scheme is a legally recognised arrangement whereby a building and the land upon which it is erected is subdivided into lots, or lots and common property. The lots (commonly called units) have a separate title, which can generally be bought and sold without restriction. Common property is that part of a strata plan not comprised of any proprietors lot and includes the stairways, lifts, passages, common gardening areas, and any other fixtures intended for common use.

The ownership of common property varies under different State Acts and Territorial Ordinances. In Tasmania ownership of common property is vested in the proprietors' as tenants in common in proportions equal to their lot entitlements.

You do not make a capital gain or loss if you subdivide a parcel of land into two or more separate assets. However, you may make a capital gain or loss when you sell the subdivided blocks. The date you acquired the original parcel of land and the cost base of the original land is divided between the subdivided blocks on a reasonable basis.

As tenants in common each lot holder makes a capital gain or a capital loss in line with their interest in the asset when the asset is sold. Any net capital gain or capital loss would then be included in the assessable income of each lot holder.

In your case:

· you are the owner of a strata titled lot.

· the lot is located in a certain state and is subject to the state property law.

· ownership of any common land that is strata titled is then vested in you as the proprietor as a tenant in common under the state law.

· on the sale of common land any capital gain or capital loss will be calculated according to your proportional interest in the property.

Any net capital gain or loss made by you on the sale of the common land will be included in your assessable income. As you have owned the lot for greater than 12 months and you are an individual you may use the discount method to calculate your capital gain.

The capital gain or capital loss is not disregarded as the land was acquired after the 20 September 1985, and was not sold with a dwelling that was your main residence.

Question 2

Granting a Right of Carriage Way on your land allows authorised people to pass through that carriageway at all times, for all purposes. You are essentially creating an easement to the property.

For capital gains tax purposes, the granting of an easement creates a contractual right and is a capital gains tax event that brings an asset into existence. You make a capital gain if the capital proceeds from creating the right are more than the incidental costs you incurred that relate to that event. You make a capital loss if those capital proceeds are less.

As it is your body corporate who has granted the Right of way, the ownership of this asset is vested in the proprietors of the body corporate lots, as is prescribed under Tasmanian property law. Any capital gain or loss made will be calculated according to your proportional interest in the property, and will be included in your assessable income.

The capital gains tax event occurs when you enter into the contract, or create the right. You will then need to include any capital gain or loss in your assessable income in the year that the contract was entered into, even if settlement has not yet occurred. You will also need to include the amount in your assessable income if the body corporate retains the proceeds of the sale.

You cannot use the discount method to calculate your capital gain as granting of the contractual right creates the asset and settlement simultaneously.