Issue
When the taxpayer acquires share and extraction rights through a permanent transfer in accordance with section 71D of the Water Management Act 2000 (NSW) (WMA), are those rights separate CGT assets, as defined in section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997), from the access licence held by the taxpayer under section 63 of the WMA?
Decision
Yes. When the taxpayer acquires share and extraction rights through a permanent transfer in accordance with section 71D of the WMA, those rights are separate CGT assets, as defined in section 108-5 of the ITAA 1997, from the access licence held by the taxpayer under section 63 of the WMA.
Facts
The taxpayer holds an access licence under section 63 of the WMA. The taxpayer acquires additional share and extraction rights from the holder of another access licence through a permanent transfer in accordance with section 71D of the WMA.
Reasons for Decision
Subsection 108-5(1) of the ITAA 1997 defines a CGT asset as: (a) Any kind of property; or (b) A legal or equitable right that is not property.
Share and extraction rights pertaining to an access licence under subsection 56(1) of the WMA are legal rights and consequently fall within the definition of a CGT asset in subsection 108-5(1) of the ITAA 1997. Share and extraction rights are also transferable separately from the access licence in accordance with the procedure set out in section 71D of the WMA.
When the taxpayer acquires share and extraction rights through a permanent transfer in accordance with section 71D of the WMA, those rights are separate CGT assets from the taxpayer's access licence. The acquisition times of the access licence under Division 109 of the ITAA 1997 are different and the cost base calculations under Division 110 of the ITAA 1997 will be separate.