Tuesday, 15 October 2013

CGT Rollover Relief When Building a Strata Plan


CGT Rollover Relief When Building a Strata Plan

BAN TACS Accountants Pty Ltd How not to be a Developer Booklet - 26 - Created by Julia Hartman B.Bus CPA, CA, Registered Tax Agent


If you build a duplex or block of units with a business partner you will effectively own all the properties together under the same legal title as you did the original land. This can create a CGT nightmare if you want to own your units individually.
For example you and a friend find a nice block of land that is far too expensive for either of you. But it is large enough to be approved by Council for a duplex development. So you agree to buy the land together build a duplex and then take one each. The trouble is once the duplex is built you will still technically own half of each other’s unit just as you had owned half of the land and if you simply subdivided the land and changed the title to sole ownership you would create a CGT event in that you would be deemed to have sold each other at market value half of their unit. On the other hand if you split the duplex under a strata plan you would be entitled to use the rollover relief available under section 118-42 so that no CGT would be payable.
Section 118-42 does not discuss these particular circumstances in fact it is very basic, as follows: If:
  1. a)  You own land on which there is a building and
  2. b)  You subdivide the building into stratum units and
  3. c)  You transfer each unit to the entity who had the right to occupy it just before the subdivision
A capital gain or capital loss you make from transferring the unit is disregarded.
To your advantage is the fact PBR 17485 specifically discusses duplex and claims that section 118-42 can be used in these circumstances.
Note that PBRs are not binding on the ATO so if you want to be sure you should apply for your own ruling quoting PBR 17485