Issue
Does CGT event A1, under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997), happen when the investor sells a carbon sequestration right, as defined in section 87A of the Conveyancing Act 1919 (NSW) (the Conveyancing Act), before the end of the contract?
Decision
Yes. CGT event A1, under section 104-10 of the ITAA 1997, happens when the investor sells a carbon sequestration right, as defined in section 87A of the Conveyancing Act, before the end of the contract.
Facts
An investor enters into a contract with a New South Wales landowner for the acquisition of a carbon sequestration right, as defined in section 87A of the Conveyancing Act. The term of the contract is 20 years. During the fifth year of the contract, the investor sells the right to another investor.
Reasons for Decision
Subsection 104-10(1) of the ITAA 1997 states that CGT event A1 happens if you dispose of a CGT asset. Under subsection 104-10(2) of the ITAA 1997, you dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law.
A carbon sequestration right, as defined under section 87A of the Conveyancing Act, is a legal right that satisfies the definition of 'CGT asset' in subsection 108-5(1) of the ITAA 1997.
Under subsection 960-100(1) of the ITAA 1997, an entity is defined as any of the following: (a) an individual; (b) a body corporate; (c) a body politic; (d) a partnership; (e) any other unincorporated association or body of persons; (f) a trust; (g) a superannuation fund.
A carbon sequestration right is defined in section 87A of the Conveyancing Act as follows: carbon sequestration right in relation to land, means a right conferred on a person by agreement or otherwise to the legal, commercial or other benefit (whether present or future) of carbon sequestration by any existing or future tree or forest on the land after 1990.
The selling of the right to another entity before the end of the contract constitutes a change of ownership of the asset, and hence a disposal of a CGT asset under subsection 104-10(1) of the ITAA 1997.