Edited version of your private ruling

Authorisation Number: 1051785038470

Ruling

Subject: Capital gains tax - termination of strata scheme

Question 1

Will the termination of the Strata Plan and subsequent issue of a single deposited plan lot trigger a CGT event?

Answer:

No

Question 2

How will the capital gains attributed to the termination of the Strata Plan be calculated?

Answer:

Not Applicable

Question 3

Is any rollover concession available to provide relief to any capital gains?

Answer:

Not Applicable

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

1.    Mr A is the sole owner of a house located at an NSW address (the Property).

2.    The Property is registered as Strata Plan XYZ (the Strata Plan) and consists of two lots. The ground floor of the house is Lot 1 and the first floor is Lot 2.

3.    Due to ongoing costs associated with strata schemes, Mr A will apply to have the Strata Plan terminated and a single deposited plan issued in its place.

4.    Mr A will be the sole owner of the deposited plan issued in place of the Strata Plan.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 112-25(4)

Question 1

Will the termination of the Strata Plan and subsequent issue of a single deposited plan lot trigger a CGT event?

Summary

The termination of the Strata Plan and subsequent issue of a single deposited plan lot will not trigger a CGT event because it constitutes a merger for the purpose of subsection 112-25(4) of the Income Tax Assessment Act 1997.

Reasons for decision

5.    In New South Wales, an application for termination of a strata scheme can be made to the Registrar-General in accordance with Part 9 Division 4 of the Strata Schemes Development Act 2015 (New South Wales).

6.    Mr A will apply to have the Strata Plan terminated and a deposited plan issued in its place.

7.    Subsection 112-25(4) of the Income Tax Assessment Act 1997 gives:

If 2 or more * CGT assets (the original assets) are merged into a single asset (the new asset) and you are the beneficial owner of the original assets and the new asset:

(a)   the merger is not a * CGT event; and

(b)   each element of the * cost base and * reduced cost base of the new asset (at the time of the merging) is the sum of the corresponding elements of each original asset.

8.    Lots 1 and 2 of the Strata Plan are both separate CGT assets. These two lots are two different floors of the same house.

9.    The termination of the Strata Plan and subsequent issue of a deposited plan over the entirety of the house at the Property will result in the house being a single CGT asset.

10.  The single CGT asset has been created through the merger of two separate CGT assets.

11.  Mr A was the sole owner of both lots of the Strata Plan and will be the sole owner of the subsequently issued deposit plan.

12.  Therefore, the requirements of subsection 112-25(4) of the Income Tax Assessment Act 1997 are met and there will be no CGT event.

13.  Once the deposited plan is issued, each element of the single asset's cost base and reduced cost base will be the sum of the corresponding elements of the two lots of the Strata Plan.

Question 2

How will the capital gains attributed to the termination of the Strata Plan be calculated?

Summary

It is not necessary to answer this question as no CGT event will be triggered by the termination of the Strata Plan and subsequent issue of a deposit plan.

Question 3

Is any rollover concession available to provide relief to any capital gains?

Summary

It is not necessary to answer this question as no CGT event will be triggered by the termination of the Strata Plan and subsequent issue of a deposit plan.