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Edited version of your written advice
Authorisation Number: 1012898428656
Date of advice: 20 October 2015
Ruling
Subject: Capital gains tax
Questions and answers
1. Are you liable for capital gains tax when you transfer your share in each block to the other co-owners of the land?
Yes.
2. Are you liable for capital gains tax when you sell your interest in the X block?
Yes.
This ruling applies for the following period:
Year ending 30 June 20ZZ
The scheme commenced on:
1 July 20YY
Relevant facts and circumstances
You and friends purchased a block of land in the 20ZZ income year.
The land is in all names.
You intend on sub-dividing the land into X blocks.
Each of you will retain one block which will be in your own name and the X block will be sold.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 103-5.
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 112-25.
Income Tax Assessment Act 1997 Paragraph 116-20(1)(b).
Reasons for decision
You only make a capital gain or capital loss if a CGT event happens to an asset that you own.
Subdivision is not a CGT event. At the time of subdivision each subdivided block will retain the original acquisition date. However, if there is a change of ownership interests at the time of the subdivision, there will be CGT implications.
For CGT purposes, if you are joint owners of a property, you are treated as if you own an equal share in the asset. For example, if you own two blocks of land you are treated as if you own a 50% interest in each of the two blocks of land rather than owning one block each.
If two or more taxpayers own an asset jointly, CGT applies separately to each of the taxpayers interests in the asset.
Upon initial acquisition and before subdivision of the property by you and X other people, you each acquired a XX individual interest in the whole property.
After the subdivision, you and X other people have a XX interest in each of the subdivided blocks. If there is been no change in ownership of the subdivided land, there is no acquisition or disposal for CGT purposes.
However, as a result of the pending transaction whereby each of you will have sole ownership of an individual property, each owner is taken to have disposed of his or her X interest in the subdivided properties which are now owned by one of the other original owners. There have been corresponding acquisitions by each owner from the others of those interests in the property now owned by each of them which were previously owned by the others.
This change in ownership means that CGT event A1 will occur. You make a capital gain if your capital proceeds exceed the cost base of the asset. You make a capital loss if the reduced cost base of the asset was higher than your capital proceeds.
For the X blocks that you are disposing of your interest in to the other co-owners the capital proceeds you receive for the disposal of your interest is the market value of the interest in the block that you will receive in exchange from each of the other co-owners.
For the block to be disposed of to a third party your proceeds will be X of the total proceeds received for the block.