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Edited version of your private ruling
Authorisation Number: 1012500250975
Ruling
Subject: Status of land after the implementation of a new strata plan
Question
Will your land retain its pre-capital gains tax (CGT) status after the implementation of the new strata plan?
Answer
No.
This ruling applies for the following periods:
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commences on:
1 July 2013
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.
Prior to 20 September 1985 you acquired a unit in a building in NSW.
The unit was acquired under strata title and is an investment property. There are a number of units in the building.
Since the acquisition of the property, you and the other registered proprietors in the building have been using car spaces which are not allotted to the unit titles.
It is proposed to formalise the car parking space arrangement to reflect the use of the car spaces as presently enjoyed by all owners in the building. To facilitate this, it will be necessary for a new strata plan to be registered allocating the car spaces to the units as being used. This will entail a transfer of land being registered on the title to each unit.
Your unit will therefore have the present car space from another unit allotted to it and you will transfer your unit's car space to another unit.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20,
Income Tax Assessment Act 1997 Section 104-10 and
Income Tax Assessment Act 1997 Section 124-190.
Reasons for decision
Taxation Ruling IT 2505 explains that common property is that part of the strata plan not comprised in any proprietor's lot. Paragraph 4 of IT 2505 explains that in New South Wales the ownership of common property is vested in the body corporate as an agent for the proprietors as tenants in common in proportion to their lot entitlement. The car park area of your building is common property which is owned by all of the unit holders in the building.
When the new strata plan is registered and the car spaces are allotted to the unit holders, each of the four unit holders in the building is in effect disposing of part of their interest in the common property and acquiring another portion of what formerly was the common property.
Where an individual disposes of a capital gains tax (CGT) asset, CGT event A1 happens and either a capital gain or capital loss is made. However, any capital gain or capital loss that you make on the disposal of an asset is disregarded if you acquired the asset prior to 20 September 1985 (pre-CGT).
Section 124-190 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can choose to obtain a rollover where you acquire a stratum unit, including common property, that corresponds to the unit that you had the right to occupy prior to any subdivision. The effect of the rollover is that any capital gain or capital loss is disregarded and the newly acquired stratum unit is taken to have been acquired at the same time as the original asset.
In your situation, as you acquired the common property that you are disposing of pre-CGT, any capital gain of capital loss that you make at the time of the implementation of the new strata plan is disregarded.
Rollover will not apply as you are not acquiring the same common property as you held prior to the implementation of the new strata plan.
You will receive an allotted car space and a portion of this car space, the quarter that you already own, will retain its pre CGT status. However, you will also acquire an additional three quarters which you will be taken to have acquired at the time of the allotment for its market value. This will mean that part of the car space will be a pre-CGT asset and part will be a post-CGT asset.
When you sell the property in the future, the portion that is a post-CGT asset will be subject to CGT.