Edited version of private advice

Authorisation Number: 1051780301005

Date of advice: 17 November 2020

Ruling

Subject: Capital gains tax - not in common ownership - plan of land consolidation

Question

Will CGT event A1 in section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) happen when the title to land owned by the taxpayer is amalgamated under a 'not in common ownership' plan of consolidation with adjoining land owned by another taxpayer?

Answer

No.

This ruling applies for the following period:

Income year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Taxpayer 1 acquired land after 20 September 1985.

Taxpayer 2 acquired land adjoining the land owned by Taxpayer 1 after 20 September 1985.

Taxpayer 1 and Taxpayer 2 wish to develop the properties above, creating a new retail and commercial building (or a mixture thereof) with the intention of generating future returns.

In order to attain development approval, the relevant Council has requested that the title for the properties be amalgamated.

To satisfy the Council's requirement for a single title, Taxpayer 1 and Taxpayer 2 are contemplating consolidating the properties via a Not in Common Ownership (NICO) Plan and lodging this plan with the Register of Titles.

The Register of Titles will then issue a NICO title for the lot as consolidated on the plan (the NICO Title).

The NICO Title will comprise separate lots, the size and area of which will correlate directly with the prior titles of the properties. No boundaries will be altered.

The NICO will not transfer the ownership of land between Taxpayer 1 and Taxpayer 2; each will remain legally entitled only to the lots with the same location, size and estimated value they previously held.

Should the NICO Title be sold in the future Taxpayer 1 and Taxpayer 2 would need to provide their consent.

Relevant legislative provisions

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Section 104-10

Reasons for decision

CGT event A1 happens if you dispose of a CGT asset (subsection 104-10(1) of the Income Tax Assessment Act 1997 (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 acquires an interest in the property previously owned by the other entity as a result of the merger.

However, 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, Taxpayer 1 owns the properties referred to as Title X and Taxpayer 2 owns the property referred to as Title Y.

Taxpayer 1 and Taxpayer 2 intend to amalgamate the properties under a NICO title.

When the amalgamation occurs under the NICO title it is considered that there will be no change of ownership in the properties.

Therefore, CGT event A1 in section 104-10 of the ITAA 1997 will not happen the respective properties owned by Taxpayer 1 and Taxpayer 2 before the issuing of the NICO title will continue to be owned by Taxpayer 1 and Taxpayer 2 after the issuing of the NICO title.