ATO Interpretative Decision

ATO ID 2005/367

Income Tax

Capital Gains Tax: not in common ownership - plan of consolidation
FOI status: may be released

This ATO ID was withdrawn in error on 1 September 2017. This error was corrected on 7 September 2017 and this ATO ID has been current since its release.

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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

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 a taxpayer is amalgamated under a 'not in common ownership' plan of consolidation with adjoining land owned by another entity?

Decision

No. CGT event A1 will not happen because, in these circumstances, there has been no change of ownership of the taxpayer's land (paragraph 104-10(2)(a) of the ITAA 1997).

Facts

The taxpayer acquired land before 20 September 1985.

In the 2005-06 income year, the taxpayer and the owner of an adjoining property agreed to develop both properties together. Pursuant to the development agreement, the taxpayer and the owner of the other property obtained approval of a not in common ownership (NICO) plan of consolidation of the two properties.

The NICO plan of consolidation was lodged with the Registrar of Titles who issued a NICO title for the lot as consolidated on the plan. On this new title the owners were described as the taxpayer 'as to the land formerly contained in Certificate of Title XX' and the other owner as 'to the land formerly contained in Certificate of Title YY'.

The taxpayer wishes to know whether the issuing of a single NICO title covering both of the previous lots results in the taxpayer being taken to have acquired their land after 20 September 1985.

Reasons for Decision

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. However a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner (paragraph 104-10(2)(a) of the ITAA 1997).

Generally, CGT event A1 will happen when the title to two properties owned by different entities is merged. This is because each co-owner acquires, as a result of the merger, an interest in the land previously owned by the other.

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 (though the NICO title requires both owners to agree to any subsequent transfer of any part of the land).

In the circumstances, it is considered that there has been no change of ownership of the taxpayer's land. Therefore, CGT event A1 in section 104-10 of the ITAA 1997 has not happened and the land owned by the taxpayer before the issuing of the NICO title continues to be owned by the taxpayer after the issuing of the NICO title. This means the taxpayer will continue to be regarded as having acquired that land before 20 September 1985.

Date of decision: 14 December 2005

Year of income: Year ended 30 June 2006

Legislative References:
Income Tax Assessment Act 1997
   section 104-10
   subsection 104-10(1)
   paragraph 104-10(2)(a)

Keywords
Capital gains tax
CGT events
CGT event A1 - disposal of CGT asset

Siebel/TDMS Reference Number: 4836097

Business Line: Public Groups and International

Date of publication: 23 December 2005

ISSN: 1445-2782

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