Issue
Can any of the rollover threshold conditions in paragraphs 124-70(1)(a), 124-70(1)(aa) or 124-70(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) be satisfied by an entity that has an easement created over their land?
Decision
No. The threshold conditions in paragraphs 124-70(1)(a), 124-70(1)(aa) or 124-70(1)(c) of the ITAA 1997 cannot be satisfied in this case.
Facts
An Australian government agency (the acquirer) intends to obtain road access across a landowner's property for the construction of an infrastructure facility.
The acquirer serves a notice on the landowner inviting them to negotiate for the creation of an easement over the landowner's land. The notice informs the landowner that if negotiations are unsuccessful, the acquirer will proceed to create an easement pursuant to its powers under State legislation.
The parties negotiate and agree.
An easement is created, for which the acquirer pays an amount to the landowner.
Reasons for Decision
Provided the other requirements are satisfied capital gains tax rollover relief under Subdivision 124-B of the ITAA 1997 may be available where the threshold conditions in paragraphs 124-70(1)(a), 124-70(1)(aa) or 124-70(1)(c) of the ITAA 1997 are satisfied.
Both paragraphs 124-70(1)(a) and 124-70(1)(aa) of the ITAA 1997 require that an asset that you own is compulsorily 'acquired' by another entity.
Paragraph 124-70(1)(c)of the ITAA 1997 requires a 'disposal' from you to another entity in circumstances where the disposal takes place after service on you of a notice inviting negotiation for a sale and informing that, if negotiations are unsuccessful, compulsory acquisition will follow.
A disposal involves a change of ownership of an asset from you to another entity (subsection 995-1(1) of the ITAA 1997, definition of 'dispose of').
For rollover relief under Subdivision 124-B of the ITAA 1997 to be available, there must be a change in ownership of an asset that is the subject of the capital gains tax (CGT) event, which must exist both before and after the event.
There is no change of ownership of an asset upon the creation of an easement because a new asset, an easement, is being created.
Therefore, the threshold conditions in paragraphs 124-70(1)(a), 124-70(1)(aa) and 124-70(1)(c) of the ITAA 1997 cannot be satisfied in this case.
Accordingly, the taxpayer cannot claim the rollover relief under Subdivision 124-B of the ITAA 1997.