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Tax Tip 140: Strata Titling a property and CGT

Discussion in 'Accounting & Tax' started by Terry_w, 29th Jun, 2016.

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  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Strata Titling a property and CGT

    Converting a property from Torrens title to Strata title does not result in a CGT event if the ownership of the property does not change. S 118-42 ITAA97

    If land was owned by 2 people and the land was strata titles into 4 units with 2 units going into name A and 2 into name B then this will be a CGT event. 50% of half would be transferred to A so B would have a CGT event and 50% of the other half would be going to B so A would also have a CGT event as well.

    See
    S 118-42 ITAA97 INCOME TAX ASSESSMENT ACT 1997 - SECT 118.42 Transfer of stratum units
     
    Simon Moore likes this.
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Partitioning can trigger GST thresholds and care must be taken. Often a partition of land can be used to "change" ownership.

    eg Mick and Fred (brothers) buy two lots of neighbouring identical land. They buy 50/50 TIC on each lot and propose to owner-build or project manage the build of two TH on each lot. At the end they propose to own one each. They plan to each own one TH and reside in it and rent the other out.They dont get legal advice (BTW - This example is very common !!).

    Problem is they will always own 50% of each others lot and cant access a 100% main residence exemption either. A partition would allow a change of title that acts similiar to a subdivision...Provided A/B each owns 50% and lots are identical a Deed of Partition may work in some states. A partition may allow a change of title and no transfer duty. However for GST purposes A makes a supply to B and B makes a supply to A....GST applies as threshold is exceeded and if its resi they cant claim the GST on the acquisitions.

    They also may trigger a CGT event. No main residence exemption. Possibly they could access it three-four months after moving in. But only on 50% (each).