IS 22/03 is a good read for those of you advising on the potential application of the various land taxing rules (particularly bright-line) to co-ownership changes with respect to a land title, including changes to the trustees of a trust.
I suspect most of us already appreciate with respect to the latter, that a trustee change would not amount to a “disposal” for the purpose of the land sales rules, and IS 22/03 certainly confirms that view.
Potentially not so understood are the taxation consequences triggered by a change in co-owners, particularly where the existing co-owners simply adjust their respective ownership interests in the property and there is no new co-owner added to the ownership pool, nor a reduction in the existing number of co-owners.
The 40-page interpretation statement sets out IR’s view on the tax effects of co-ownership changes, and arguably a simple read of pages 2–4 of the document will be sufficient to guide you forward. So, in summary:
- A change to the form of co-ownership, (e.g., joint tenant to tenants in common) where the proportional shares or notional shares do not change, will not be a ‘disposal’ for the purposes of the land sale rules;
- If there is a transfer between co-owners where neither’s interest is fully alienated but the proportional share or notional share of a co-owner is reduced, there would be a ‘disposal’ for the purposes of the land sale rules by that person to the extent their interest is reduced;
- If there is a transfer that adds a new co-owner, there would be a ‘disposal’ for the purposes of the land sale rules to the extent the share (or notional share) of the original owner(s) in the land is reduced; and,
- If there is a transfer that removes a co-owner, there would be a ‘disposal’ by the departing co-owner of their share (or notional share) in the land.
And just in case that summary is not clear enough, Table one immediately follows to provide additional clarity to the interpretation of the rules.