Issue
Does CGT event C2 happen under Division 104 of the Income Tax Assessment Act 1997 (ITAA 1997) if a lessor surrenders its rights under a lease agreement?
Decision
Yes. CGT event C2 happens under section 104-25 of the ITAA 1997 when a lessor surrenders its rights under a lease agreement.
Facts
A lease agreement exists between a lessor and lessee. The lessee requests that the lease be terminated. The lessor agrees to the termination of the lease provided that the lessee pays to the lessor a lease surrender payment.
Reasons for Decision
Changes made to paragraphs 104-10(5)(b) and 104-25(5)(b) of the ITAA 1997 that apply to assessments for the 1998-99 and later income years recognise a lessor's rights under a lease as an asset for CGT purposes.
The entry into a lease by the lessor and lessee constitutes the acquisition of an asset by the lessor. The asset comprises the contractual rights vested in the lessor under the lease agreement, including the right to receive the nominated rent, but subject to the provision of possession.
Upon the surrender of the lease by the lessee, CGT event C2 happens to the lessor in relation to the surrender of its rights under the lease agreement. The surrender payment received by the lessor constitutes the capital proceeds for the event happening.