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Is the forfeiture of a property under a State law a disposal of a CGT asset under subsection 104-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes, the forfeiture of a property under a State law is a disposal of a CGT asset under subsection 104-10(2) of the ITAA 1997.

A judgment was entered against the taxpayer. As a result of the judgment, certain property owned by the taxpayer was forfeited under a State law.

The property was not acquired before 20 September 1985 and was rented out for the period it was owned by the taxpayer.

CGT event A1 happens when a taxpayer disposes of a CGT asset. A taxpayer disposes of a CGT asset when a change of ownership occurs from them to another entity, whether by some act or event or by operation of law (subsection 104-10(2) of the ITAA 1997). However, a change of ownership does not occur: - if the taxpayer stops being the legal owner of the asset but continues to be its beneficial owner; or - merely because of a change in the trustee.

In the present case, the property was forfeited under a State law. There has been a change of ownership from the taxpayer to the State by operation of law. The State is an entity for the purposes of the ITAA 1997 (see subsection 960-100(1) of the ITAA 1997). Consequently, the forfeiture of the property is a disposal of a CGT asset at the time CGT event A1 happened to the property.

As the property was compulsorily acquired by an entity under a power conferred by a State law, the time of the disposal is determined by subsection 104-10(6) of the ITAA 1997. The time of disposal will be the earlier of: - when the taxpayer received compensation from the entity; or - when the entity becomes the asset's owner; or - when the entity entered it under that power; or - when the entity took possession under that power.

As the property vested absolutely in the State when the forfeiture order was made, the State became the owner of the property on the date judgment was entered against the taxpayer in the Supreme Court of the State. This is when CGT event A1 happened to the taxpayer.

Date of Amendment Part Comment 27 February 2015 Facts Minor amendments for clarity Reasons for Decision Deletion of reference to former paragraphs 104-10(2)(a) and (b) of the ITAA 1997. Minor amendments for clarity Legislative References Updated.

Date of Amendment | Part | Comment

27 February 2015 | Facts | Minor amendments for clarity

Reasons for Decision | Deletion of reference to former paragraphs 104-10(2)(a) and (b) of the ITAA 1997. Minor amendments for clarity

Legislative References | Updated.