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Edited version of your written advice
Authorisation Number: 1013104086643
Date of advice: 7 October 2016
Ruling
Subject: 15 Year CGT Asset Exemption
Question 1
Is it considered that the amalgamated land has been continuously owned by the Applicant for a 15 year period within the meaning of paragraph 152-110(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
Question 2
If the answer to question 1 is no, is the Applicant entitled to treat the amalgamated land as two separate assets, with the effect that the original land will have been continuously owned by the Applicant for the 15 year period ending just before the proposed sale within the meaning of paragraph 152-110(1)(b) of the ITAA 1997?
Answer
Not Applicable
This ruling applies for the following periods:
End of financial year 30 June 2017
The scheme commences on:
20XX
Relevant facts and circumstances
The applicant has owned a block of land for in excess of 15 years, on which business was conducted.
The applicant later entered into a NICO Subdivision with the vendor over a parcel of land which was adjacent to the original land.
When settlement was completed, the boundaries of the adjacent parcel of land and the original land were realigned and amalgamated.
Both the original land and the additional land have been used in the course of carrying on a business by the applicant since their acquisition.
The amalgamated land is now on one single Certificate of Title.
The applicant now wishes to sell the amalgamated land and is considering, provided all other criteria are satisfied, whether it qualifies for the 15 year CGT exemption.
Relevant legislative provisions
Income Tax Assessment Act 1997 Paragraph 152-110(1)(b)
Income Tax Assessment Act 1997 Subsection 104-10(1)
Reasons for decision
Question 1
A CGT event A1 happens if you dispose of a CGT asset (subsection 104-10(1) of the ITAA 1997).
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.
Generally, CGT event A1 will happen when the titles of two or more properties that are owned by different entities are merged. This is because each co-owner both acquires and disposes of an interest in the property previously owned by the other entity as a result of the merger.
However as stated in ATO ID 2005/367 a NICO title does not involve co-ownership of land in the generally understood sense (that is, a tenancy in common or joint tenancy). The NICO title recognises that each proprietor continues to own the land described in their previous title deed, while requiring all of the owners in the NICO title to agree to any subsequent transfer of any part of the amalgamated land.
In this case, the applicant owns the land and has done so in excess of 15 years. Since that time, under a NICO subdivision, the applicant obtained further land adjacent to their property. This land has now been amalgamated with their original land obtained.
When the amalgamation occurs under the NICO title it is considered that there will be no change of ownership in the original property. Therefore, CGT event A1 will not happen at the time of acquisition and the original property owned by the Applicant before the issuing of the NICO title will continue to be owned by them after the issuing of the NICO title.
No other CGT event will occur when the two properties are amalgamated or when the NICO title is registered. This means that the applicant will continue to be regarded as having acquired all the land on the NICO title since the original land was acquired.
The CGT small business concessions apply to provide a measure of CGT relief on the disposal of certain assets by eligible small business taxpayers. This relief applies in addition to any CGT discounting relief the taxpayer may be entitled to.
One of the small business CGT concessions is the 15-year asset exemption.
This is outlined as follows in section 152-110 of the ITAA 1997.
An entity that is a company or trust can disregard any capital gain arising from a CGT event if all of the following conditions are satisfied:
(a) the basic conditions in Subdivision 152-A are satisfied for the gain;
(b) the entity continuously owned the CGT asset for the 15-year period ending just before the CGT event
(c) the entity had a significant individual for a total of at least 15 years (even if the 15 years was not continuous and it was not always the same significant individual) during which the entity owned the CGT asset;
(d) an individual who was a significant individual of the company or trust just before the CGT event either:
(i) was 55 or over at that time and the event happened in connection with the individuals retirement; or
(ii) was permanently incapacitated at the time.
Once the 15 year exemption is applied, the capital gain is disregarded entirely and you therefore do not apply any further concessions.
As discussed above it has been determined that the total of the amalgamated land has been owned since the original acquisition and consequently the 15 year CGT exemption will apply.