1 Will the Taxpayer's be eligible for CGT rollover relief under Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the proposed compulsory acquisition of part of their land by their local council?
1 Yes. This ruling applies for the following periods : Year ending 30 June 20XX Year ending 30 June 20XX The scheme commenced on: 1 July 20XX
The taxpayers jointly own a parcel of vacant, undeveloped land. The land was acquired after 20 September 1985 and has not been developed or used for business purposes. It is held 50/50 in their individual names. In 20XX, Local Council A proposed to compulsorily acquire part of the land. The area to be acquired represents only a portion of the total landholding. The estimated compensation amount is approximately $XXXX. Compensation will be provided in cash. The Taxpayers intend to acquire a replacement CGT asset (e.g. vacant land or other property) using all or part of the compensation, within 12 months of receiving it. Assumptions The land is not used solely for personal use, such as their main residence. The acquisition by Council A is compulsory, pursuant to legislation. >The taxpayers receive compensation for the acquisition, whether in money or replacement property. The taxpayers acquire a replacement asset (if applicable), as required by the rollover provisions. The land acquired forms part of a CGT asset, and the compulsory acquisition triggers CGT event A1.
Income Tax Assessment Act 1997 subsection 104-10 Income Tax Assessment Act 1997 section 108-5 Income Tax Assessment Act 1997 paragraph 108-5(2)(a) Income Tax Assessment Act 1997 subsection 112-30(2) Income Tax Assessment Act 1997 subsection 112-30(3) Income Tax Assessment Act 1997 subsection 112-30(4) Income Tax Assessment Act 1997 paragraph 124-70(1)(aa) Income Tax Assessment Act 1997 subsection 124-70(1A) Income Tax Assessment Act 1997 section 124-75 Income Tax Assessment Act 1997 subsection 124-75(2) Income Tax Assessment Act 1997 subsection 124-75(3) Income Tax Assessment Act 1997 section 995-1
A replacement asset roll-over allows a taxpayer, in specific circumstances, to defer the making of a capital gain or loss from one CGT event until a later CGT event happens. It involves their ownership of one CGT asset ending and acquiring another one. A CGT event happens if you dispose of a CGT asset (subsection 104-10 of the ITAA 1997). A CGT asset is a defined term under section 995-1 of the ITAA 1997 and has the meaning given by section 108-5 of the ITAA 1997. Section 108-5 of the ITAA states that a CGT asset is any kind of property including part of, or an interest in, any kind of property. Paragraph 124-70(1)(aa) of the ITAA 1997 states that a rollover may be chosen if the asset is compulsorily acquired by an entity under a power of compulsory acquisition conferred by a law covered under subsection (1A). Subsection 124-70(1A) of the ITAA 1997 states that a law is covered by this subsection if it is an Australian law, or a foreign law. Local Government Act 1993 (NSW) says Land that a council is authorised to acquire may be acquired by a compulsory process in accordance with the Land Acquisition (Just terms compensation) Act 1991
(NSW). Section 995-1 of the ITAA 1997 states that an Australian law means a Commonwealth Law, a State Law or a Territory Law. Both pieces of legislation mentioned above are State Laws. Taxation Determination TD 2001/9 Income tax: capital gains: if you receive compensation for a compulsory acquisition of part of a CGT asset which you own, how do you treat that compensation - for cost base purposes - to the extent to which it reflects a reduction in value of the remaining part of your asset? states that part of a CGT asset can itself be a CGT asset as per paragraph 108-5(2)(a) of the ITAA 1997. The compulsory acquisition of the CGT asset representing the part of the asset acquired constitutes a disposal of the CGT asset in terms of CGT event A1 to which Subdivision 124-B of the ITAA 1997 applies.
TD 2001/9 also states that subsections 112-30(2), (3) and (4) of the ITAA 1997 provide for apportionment of the cost base of a CGT asset if a CGT event happens to part of the asset and not to the remainder of it. If part of a CGT asset is compulsorily acquired, CGT event A1 happens to the CGT asset representing that part. The cost base of the asset owned before the compulsory acquisition is apportioned in accordance with subsection 112-30(3) of the ITAA 1997, having regard to the compensation received and the market value of the remaining part of the asset. If you receive money for the compulsory acquisition of a CGT asset, section 124-75 of the ITAA 1997 may apply if you choose to obtain a rollover. Subsection 124-75(2) of the ITAA 1997 states that in order to obtain the rollover, you must incur expenditure in acquiring another CGT asset. Subsection 124-75(3) of the ITAA 1997 states that at least some of the expenditure must be incurred no later than one year, or within such further timeframe as the Commissioner allows in special circumstances, after the end of the income year in which the event happens. Application to your circumstances
In this case, the taxpayers jointly own a parcel of land and the council has proposed to compulsorily acquire part of that land in accordance with the Land Acquisition (Just terms compensation) Act 1991 (NSW). Under paragraph 108-5(2)(a) of the ITAA 1997, part of a CGT asset can itself be a CGT asset, therefore when part of the land is compulsorily acquired by the council and compensation is received by the taxpayer, CGT event A1 occurs and the taxpayer is eligible to choose to apply rollover relief in subdivision 124-B of the ITAA 1997, assuming all other relevant factors are satisfied. Information on how to calculate the cost base of the original asset is contained in section 124-85 of the ITAA 1997, and information on the calculation of the first element of the new asset's cost base is in section 124-10 of the ITAA 1997.