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Does CGT event A1 in section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) happen on the sale of a dairy structural adjustment program (DSAP) payment right unit to another entity?

Yes. CGT event A1 in section 104-10 of the ITAA 1997 happens on the sale of a DSAP payment right unit to another entity.

The Australian dairy industry was deregulated on 1 July 2000. Deregulation involved among other things Commonwealth legislation which provided for 2 types of payments to dairy farmers as follows: • dairy structural adjustment program (DSAP) payments - being quarterly payments receivable over an 8 year period. • dairy exit payments - available for farmers who chose to leave agriculture.

With respect to the DSAP payments, farmers were granted a DSAP payment right of a certain value based on their past production, entitling them to a future stream of payments. The payment rights are transferable.

CGT event A1 in section 104-10 of the ITAA 1997 happens if a taxpayer disposes of a CGT asset. A disposal takes place if a change of ownership occurs from the taxpayer to another entity.

Under section 108-5 of the ITAA 1997, a CGT asset is any kind of property or a legal or equitable right that is not property. Each DSAP payment right consists of a number of units. The units are transferable, with each unit having a face value, and the registered owner being entitled to quarterly payments over a period of years. Accordingly, a payment right and the units are property and therefore CGT assets under paragraph 108-5(1)(a) of the ITAA 1997.

CGT event A1 in section 104-10 of the ITAA 1997 will therefore happen on the disposal of a DSAP payment right unit. A capital gain will be made from the CGT event if the capital proceeds from the disposal are more than the cost base of the payment right unit.

For dairy farmers to whom the original grant of a payment right was made upon deregulation, the cost base of the payment right units is nil (except for any incidental costs) because nothing was paid or given in respect of acquiring the payment right. The market value substitution rule in section 112-20 of the ITAA 1997 does not apply because the acquisition of the payment right resulted from CGT event D1 (creation of rights) happening.

The taxpayer will therefore make a capital gain, being the amount of the capital proceeds less any incidental costs.