Edited version of private advice

Authorisation Number: 1052252859600

Date of advice: 14 June 2024

Ruling

Subject: Capital gains tax

Question

Will you be liable for capital gains tax (CGT) under Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997)if you enter into the proposed agreement to correct an error in your registration as a co-owner of X of the whole of the two lots?

Answer

No. Having considered your circumstances and the terms of the proposed agreement, the Commissioner agrees there has been no change in the beneficial ownership of the properties. Accordingly, CGT event A1 will not occur in these circumstances.

This ruling applies for the following periods:

For the income year 30 June 20YY

For the income year 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

Your parent (X) inherited real estate from their parent (your Grandparent) in Country X (around YYYY) that had been in the family for many generations.

During YYYY, the Heirs (your parent and others) of your Grandparents Estate mutually agreed to divide the parcels of real estate. A surveyor was hired to assist with the division of the land and to identify the lot numbers on the cadastral plan of the relevant municipality for each of the parcels of land in the Estate.

The Heirs had limited education and limited understanding of real estate law.

Over multiple generations, the land had been divided via inheritance without formal subdivision of parcels in the cadastral plan which meant that multiple individuals may have owned a portion of an un-subdivided parcel of land. The boundaries of real estate that had been inherited but not formally subdivided were identified via boundary structures, markers and landmarks.

The division of the Estate was carried out by site visits, attended by the Heirs and their cousins and other neighbours with adjoining boundaries, to determine the correct boundary of each parcel that belonged to your grandparent which was available for division between the Heirs.

All parties at the site visit agreeing:

•         to the correctness of the boundaries of each parcel being divided,

•         that each parcel being divided belonged to the deceased,

•         the Heirs coming to an agreement on the division before witnesses.

On DDMMYYYY, in the presence of witnesses the Heirs executed a document titled 'Agreement on the division of real estate' (the X Agreement). The X Agreement provided that in the presence of the listed witnesses, the parties, after visiting the terrain, agreed amongst themselves to the division of the parcels of land.

The surveyor produced a report, dated DDMMYYYY (the surveyor's report), in respect of the lots and portions attributable to the Heirs. Attached to the report were copies of the cadastral plan for each lot identified by the surveyor.

Your parent however, maintained that the surveyor did not go on a site visit to each of the parcels of land at the time that site visits were carried out. Rather the surveyor identified the lot numbers from verbal descriptions of the location of the parcels of land.

On DDMMYYYY, the Heirs entered into a 'Sharing Agreement' where the Heirs, who had come into possession of their part of the property inherited from your grandparent, each agreed in future to pay taxes for themselves.

Also under the Sharing Agreement, the Heirs agreed that each Heir could request without permission from the others, the registration in their own name of their right of ownership and possession in the land registry in the Municipal Court in City X, as well as with the municipal administration for cadastre and geodetic affairs in City X.

On DDMMYYYY, by way of a 'Gift Contract' your parent gifted you co-ownership of all real estate within their ownership in Country X. The gift of co-ownership was in a various number of properties.

On DDMMYYYY, you signed the Gift Contract.

On DDMMYYYY, your parent granted their sibling, authority to represent them in all matters in court and out of court in respect of the transfer of the property in accordance with the Gift Contract.

On DDMMYYYY, a lawsuit, dated DDMMYYYY, was filed in the Municipal Court in City X, with you and your sibling, represented by a lawyer named X, listed as Plaintiffs (the Lawsuit).

The Heirs and your parent's relative, X being the child of X who was the child of X (now deceased), were listed as Defendants. The Lawsuit was filed in respect of a number of parcels of the gifted land.

On DDMMYYYY, the Municipal Court in City X, delivered their judgement and your co-ownership of the land was registered as a result.

Your parent had informed you that under an authority they had granted their sibling, they had engaged the services of a lawyer to transfer the gifted land out of their name into the names of the gift recipients, including into your name.

During YYYY it was bought to your attention by the new surveyor that, rather than only the portions of the Estate which your parent had inherited, you had also been registered in the X as co-owners of portions of land which were owned via inheritance by the descendants of X.

The errors occurred due to your parents reliance on the previous surveyor at the time of division of the Estate, and the actions of a lawyer, engaged by their sibling, who acted without your knowledge or authorisation and did not contact you to discuss the lawsuit. The surveyor did not carry out site visits with the Heirs and did not correctly identifying lot numbers in the surveyor's report.

The new surveyor confirmed that they had been working with your parent for a number of years to correct the errors with the registration of the land in the X records.

Only the land forming lot W, being an area of X square metres, was inherited by your parent from their parent and able to be gifted to you. You are legal and beneficial co-owner of lot W only.

Although you were registered as a legal co-owner of lot Y and lot Z, you are not the beneficial owner of those properties. X have continuously been in possession of the land situated at lots Y and Z, and have continuously used that land for agricultural purposes since the land was inherited from their parent. Their possession and use of these lots was not altered as a result of your name as co-owner being registered in the X records.

Your parent had no inheritance rights in respect to lot Y and lot Z as they were not the legal Heir of X. As such, they were not entitled to ownership of any part of either lot and they were not able to gift ownership in either lot, to you.

Execution of the proposed agreement with X will correct the error in the registration of co-ownership resulting in X holding both legal and beneficial ownership of both lots, as was the case prior to your name being incorrectly registered in the X records.

The original copy (redacted) and translated copy (Country X to English) of the proposed confidential agreement has been provided to the Commissioner.

You will not receive any funds or consideration on the execution of the agreement.

Relevant legislative provisions

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 section 104-10