Issue
Does CGT event B1 in section 104-15 of the Income Tax Assessment Act 1997 (ITAA 1997) happen to a lessor under a lease agreement for land if, under another agreement, the land may pass to the lessee at or before the end of the lease agreement?
Decision
No. CGT event B1 in section 104-15 of the ITAA 1997 will not happen in these circumstances.
Facts
The taxpayer (lessor) entered into a lease agreement over land with another entity (lessee). The taxpayer also entered into a loan agreement with the same entity.
Under the loan agreement the other entity will be able to take ownership of the land if the lease is terminated due to a breach of the lease agreement by the lessor or because the loan is not repaid by the lessor at the end of the loan term.
The lease agreement and the loan agreement are two separate independent agreements.
Reasons for Decision
Subsection 104-15(1) of ITAA 1997 provides: CGT event B1 happens if you enter into an agreement with another entity under which: (a) the right to the use and enjoyment of a CGT asset you own passes to the other entity; and (b) title in the asset will or may pass to the other entity at or before the end of the agreement.
The provision contemplates the existence of only one agreement for it to operate. If under the same agreement the right to the use and enjoyment of the asset passes to another entity and title in the asset will or may pass to the same entity at or before the end of that agreement, CGT event B1 is triggered.
CGT event B1 will not happen in this case, because the agreement by which the entity obtained use and enjoyment of the land (the lease agreement) is not the agreement by which title in the land may pass to that entity (the loan agreement).
Amendment History
Date of Amendment Part Comment 7 March 2016 Facts & Reasons for Decision Updated to improve clarity.
Date of Amendment | Part | Comment
7 March 2016 | Facts & Reasons for Decision | Updated to improve clarity.