Partitioning Land without Triggering Capital Gains
When individuals own property as tenants in common, they typically don't have specific rights to particular parts of the land. Instead, they each own a percentage interest in the entire property. However, they can overcome this by agreeing to exclusive occupation of specific portions, like home units.
Usually, if tenants in common decide to subdivide their property and transfer their interests so that each owns 100% of a subdivided lot, it triggers a capital gains tax (CGT) liability (known as 'partitioning' the land). For instance, if two owners split a building equally and each becomes a sole owner of a stratum unit, it counts as a disposal and acquisition, necessitating CGT calculations for each owner.
However, there might be roll-over relief available under certain circumstances outlined in sections S.118-42 and S.124-190 for qualifying tenants in common. Even though some references in the ruling might be outdated, it still applies to current provisions.
Tax Ruling TR 97/4 addresses how roll-over relief applies to land and building subdivision under stratum unit ownership arrangements, including tenancy in common setups with exclusive occupancy agreements.
Got questions? Reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.
