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Edited version of private ruling
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Ruling
Subject : CGT on surrendered title on property
Question and Answer
Does a Capital Gains Tax event C2 occur when you surrender your right to a title on property?
Yes
This ruling applies for the following period
1 July 2010 to 30 June 2012
Relevant facts and circumstances
The land is a post CGT asset.
The land is on three titles.
The local council by-laws prohibit the creation of any further titles in the region.
Your neighbour wants to sub-divide their land but can not because of the restriction on creating new titles.
Your neighbour has requested the three titles be converted to two titles thus releasing one title in which they could then acquire.
Your neighbour is offering you a cash incentive to have the titles re-drawn.
Your actual land holding will not change, only the legal description.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Subsection 104-25(2)
Income Tax Assessment Act 1997 Section 108-5(1)
Reason for Decision
Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event happening (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)).
Generally, you acquire a capital gains tax asset (CGT) asset when you become its owner.
You then make a capital gain or capital loss when a CGT event happens in relation to that asset.
Under subsection 108-5(1), a CGT asset is:
(a) any kind of property; or
(b) a legal or equitable right that is not property.
CGT event C2 happens when the relevant CGT asset is cancelled, surrendered or comes to a similar end.
Subsection 104-25(2) of the ITAA 1997 provides that CGT event C2 will occur at the time of:
· entering into the contract that results in the asset ending; or
· if there is no contract when the asset ends.
You have a legal or equitable right to the titles covering the property and by surrendering one of the titles you are surrendering your right to that title. Therefore, a CGT C2 event will occur when you enter into the contract to convert the titles from three to two titles.