Early-bird tax savings: are partition arrangements made now the solution to lower CGT?

“That existing agreement could potentially end up saving a lot on tax.”

“Generally, the earlier you do it, the better, because again, triggering that CGT event, if you’re going to have to, [it is] often better to trigger it early before the property has increased too much in value, but again, obviously depends on the facts and what sort of numbers you’re talking about.”

Carruthers warned, however, that partition arrangements are complex to work through.

“We would normally say that it needs a tax person to be involved, but it also probably needs a legal person to be involved as well, in terms of getting a contract or agreement in place, checking whether there was an existing contract or agreement in place, [and] looking at it from a duty point of view.”

“Those are things probably someone else will need to do unless you are a solicitor or a barrister. So often it will be a bit of a team effort. Accountant, tax advisor, lawyer and the client working [through this] together.“

Carruthers noted that a partition arrangement changes how the underlying ownership of a property is held; owners must understand when a change of ownership between joint owners goes beyond a mere subdivision.

“[Where there are] two individual owners [who are] joint owners of a property that is split into two: a partition arrangement would involve individual A taking lot A, and individual B taking lot B. That’s more than just a subdivision; we’re actually changing things here. That is going to trigger some CGT implications,” he said.

He added that it is crucial for tax practitioners to ensure their property-owning clients understand the CGT implications upfront.

As the new CGT legislation comes into effect in 2027, calculating tax after a CGT event will become more complex, with the 50 per cent CGT discount applying until 31 June 2027, then indexation and a 30 per cent minimum tax applying after 1 July 2027.