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Edited version of private advice
Authorisation Number: 1052200232435
Date of advice: 8 December 2023
Ruling
Subject: CGT - disposal of right to occupy - roll-over relief
Question
Can you choose the capital gains tax roll over relief under section 124-190 of the Income Tax Assessment Act 1997 (ITAA 1997) on the transfer of the titles of the respective subdivided lots to you which correspond with your right to occupy?
Answer
Yes.
For capital gains tax purposes, under the subsection 124-190(1) of the ITAA 1997 you can choose to obtain a roll-over if:
a) You own property that gives you a right to occupy a unit in a building; and
b) The building's owner subdivides it into a stratum units; and
c) The owner transfers to you the stratum unit to correspond to the unit you had the right to occupy just before the subdivision.
In your situation, you each acquired shares in the Company which provided you each with the right to occupy a specific area of the Property that the Company owned. The Company has subdivided the Property into two lots, being Lot A and Lot Z. You will each surrender your shares in exchange for the ownership of one of the lots that corresponds with your respective right to occupy that lot just prior to the subdivision.
Therefore, as the conditions in subsection 124-190(1) of the ITAA 1997 have been met, you can choose to apply the roll-over relief in relation to the disposal of your right to occupy the Property.
This ruling applies for the following periods:
Income year ending 30 June 20XX
Income year ending 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
The Company
The Company is a company limited by shares which was formed for the purpose of establishing "a company title scheme' under which holders of each class of shares in the Company were given a right to occupy a designated part of a building/s constructed on the parcel of land owned by the Company (being the Property as discussed below).
Under the Company Deed, the Company has both the 'A' and 'B' Class shareholders (collectively referred to as you), with each having the right to use the whole of the land acquired by the Company and the exclusive right to reside in and use the improvements on their perspective lots as follows:
Table 1: Under the Company Deed, the Company has both the 'A' and 'B' Class shareholders:
|
'A' Class shares |
2 shares held by Person A and Person B, for exclusive right to reside and use the improvements on the Property in relation to proposed Lot A. |
|
'B' Class shares |
2 shares held by Person C and Person D, for exclusive right to reside and use the improvements on the Property in relation to Lot Z. |
Once the activities relating to the construction of the dual occupancy duplex and subdivision of the Property into two separate lots has been completed, the Company will transfer the title of the proposed lots as follows (the activities collectively referred to as the Project):
• Title of Lot A to be transferred to Persons A and B: and
• Title of Lot Z to be transferred to Persons C and D.
The Property
The Company purchased a residential property (the Property) which had a single dwelling located on it.
Project activities
The Company applied for and was granted approval of a development application with the local council (the Council) for the demolition of the pre-existing structures located on the Property and the construction of a dual occupancy duplex (collectively referred to as the Duplex).
The existing house located on the Property was demolished with the construction of the Duplex being completed the following year.
The Property's street address was changed after the construction of the Duplex was completed to account for Lot A and Lot Z.
The Company lodged a plan with the Council for the subdivision of the Property into two lots, with the Torrens title subdivision of the existing dual occupancy located at the Property into two allotments being granted.
The Company registered the subdivision of the Property into two separate Torrens titles for each of the attached dual occupancy dwellings.
The separate titles for Lot A and Lot Z have been issued to the Company.
All relevant documentation has been signed on behalf of the Company and you as the Company shareholders in relation to the transfer of the lot titles.
No consideration will be paid by you in relation to the transfer of the titles.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 124-190