1 Will CGT event A1 in section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) happen when the title to the Land owned by the Taxpayer is amalgamated under a 'not in common ownership' (NICO) plan of consolidation with adjoining land owned by another entity?
1 No. Question 2 Will the adjoining land transferred to the Taxpayer after registration of the NICO plan of consolidation be considered a separate CGT asset to the Land, and will the Land maintain its pre-CGT status? Answer 2 Yes. This ruling applies for the following periods : Income year ending 30 June 20XX Income year ending 30 June 20XX
1. The Taxpayer acquired the Land in 19XX and is considered (by the Taxpayer) a pre-CGT asset. 2. Entity B is the owner of the Adjacent Land. 3. The Taxpayer and Entity B have agreed to consolidate into a single title the whole of the Land and a part of the Adjacent Land (the Parcel). 4. The Taxpayer and Entity B will implement a 2-lot NICO plan of consolidation in respect of the Certificates of Title for the Land and the Adjacent Land. Once registered, the NICO plan of consolidation will create 2 new titles, one for the amalgamated land comprised of the Land and the Parcel ( Lot 1 ) and the other for the remaining part of the Adjacent Land ( Lot 2 ). 5. On registration of the NICO plan of consolidation: • the registered proprietors of Lot 1 will be - the Taxpayer as to the Land; and - Entity B as to the Parcel; and • the registered proprietor of Lot 2 will be Entity B.
6. Immediately following registration of the NICO plan of consolidation, a transfer of land contract will be executed and registered whereby the Taxpayer and Entity B (as transferors) will transfer their ownership interest in Lot 1 to the Taxpayer (as sole transferee). Consideration will be paid by the Taxpayer to Entity B for the transfer of the Parcel. 7. Following registration of the transfer of land contract, the Taxpayer will be registered as the sole owner of Lot 1. Assumption The Land has not stopped being a pre-CGT asset of the Taxpayer because of former subsection 160ZZS(1) of the Income Tax Assessment Act 1936 or Division 149 of the ITAA 1997.
Income Tax Assessment Act 1936 former subsection 160ZZS(1) Income Tax Assessment Act 1997 section 104-10 Income Tax Assessment Act 1997 subsection 104-10(1) Income Tax Assessment Act 1997 subsection 104-10(2) Income Tax Assessment Act 1997 Division 149 Further issues for you to consider This private ruling is confined to the questions addressed in the ruling. The Commissioner has not considered whether majority underlying interests in the Land have continued to be had at all times by ultimate owners who had majority underlying interests in the Land immediately before 20 September 1985 in order to determine whether the Land has stopped being a pre-CGT asset of the Taxpayer. The Trustee may apply for another private ruling on this or any other matters.
All subsequent legislative references are to the ITAA 1997. Question 1 Summary CGT event A1 will not happen when the title to the Land is amalgamated with part of the Adjacent Land owned by Entity B under a NICO plan of consolidation. Detailed reasoning CGT event A1 happens if you dispose of a CGT asset under subsection 104-10(1). 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 (subsection 104-10(2)). Generally, CGT event A1 will happen when the title to 2 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, the Taxpayer is contemplating consolidating the title of its land (the Land) with a portion of the Adjacent Land (the Parcel) under a NICO plan of consolidation. 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). Therefore, consistent with ATO Interpretative Decision ATO ID 2005/367, it is considered that there will not be a change of ownership of the Land; the land owned by the Taxpayer before the issuing of the NICO title will continue to be owned by the Taxpayer after the issuing of the NICO title, and CGT event A1 in section 104-10 will not happen. This means the Taxpayer will continue to be regarded as having acquired the Land before 20 September 1985 following the issue of the NICO title. Question 2 Summary
The Parcel transferred to the Taxpayer after registration of the NICO plan of consolidation will be considered a separate CGT asset to the Land, and the Land will maintain its pre-CGT status. Detailed reasoning Paragraphs 1 and 3 of Taxation Determination TD 2000/31 provide that if you own an interest in a CGT asset and you acquire another interest in that asset, the interests remain separate CGT assets for CGT purposes and there is a separate date of acquisition for each interest. Upon registration of the transfer of land contract, as proposed, there will be a change of ownership of the part of the land on the NICO title for Lot 1 owned by Entity B (the Parcel) from Entity B to the Taxpayer. At that point, the Taxpayer will have already owned an interest in Lot 1 (comprised of the Land) and will have acquired another interest in Lot 1 (comprised of the Parcel). In accordance with TD 2000/31, each of those interests will remain separate CGT assets, and the Taxpayer's acquisition of the Parcel will not disturb the pre-CGT status of the Land.