Restructuring option: partitioning land without a capital gain
Ordinarily, when people own a property as tenants in common, this does not give them a right to any particular part of the land. Instead, they each own a percentage interest in the entirety of the land. That is, each tenant in common is entitled to possession of the whole premises subject to co-ownership and not to exclusive possession of a defined portion of the premises. In many cases this feature of co-ownership has been overcome where an agreement is made between all tenants in common, under which each 'owner' has rights of exclusive occupation of a particular home unit.
Prima facie, if tenants in common decide to subdivide their property and transfer their interests (or a portion thereof), so that they each tenant owns 100% of a subdivided lot, this will ordinarily result in a CGT liability (this is referred to as ‘partitioning’ the land). For example, assume two people own a building on land as tenants in common (50/50), and they subdivide the building so that each person becomes a registered proprietor of a stratum unit. In this case, each tenant in common was entitled to 50% of the whole property, and they are each now 100% owners of half of the property. Therefore, they have each transferred to the other owner, 50% of one (subdivided) title, and they have each acquired from the other owner, 50% of the other (subdivided) title. Therefore, each owner would need to calculate CGT accordingly. Disposals and acquisitions occur because the transfer of interests between tenants in common amount to a change in the legal and beneficial ownership of those interests. Refer to TD 92/148.
That said, depending on the circumstances, there may be roll-over relief available under S.118-42 and S.124-190 for a tenant in common that satisfies the criteria in those sections. Although that ruling contains references to repealed provisions, the ruling states “The ruling still has effect” (and so may apply equally to the new provisions).
TR 97/4 deals with how the roll-over relief applies to the subdivision of land and a building (or buildings) under stratum unit ownership arrangements for home unit companies, long term leases of stratum units, and tenancy in common arrangements, which have collateral agreements that grant to participants exclusive occupancy, use and enjoyment rights over particular stratum units.