• Consequences of receiving both money and an asset

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    You need to separately determine what happens in relation to the replacement asset and the money, having regard to the proportion of the original asset attributable to each type of compensation.

    The rules described above are then applied separately to the money and to the asset.

    Example

    Replacement land received as compensation

    The State Government compulsorily acquires land Kris bought in 1999. Its cost base at the time is $150,000 but Kris receives compensation worth $160,000.

    Half of the total compensation is money ($80,000) and half is replacement land (market value $80,000). Therefore, the cost base of the original land attributable to each part of the compensation is $75,000 (50% x $150,000). Kris buys additional land for $80,000.

    The total capital gain is $10,000 - proceeds of cash and property totalling $160,000 less the cost base of $150,000. Half of this capital gain can be attributed to the money and half to the asset (the replacement land).

    The money Kris received as compensation does not exceed the amount he paid to buy the replacement land. He can therefore disregard the $5,000 of the capital gain that is attributable to the money compensation. The expenditure on the additional land is reduced by $5,000 so the first element of its cost base is only $75,000.

    As the market value of the replacement land is more than that part of the cost base of the original land attributable to the asset compensation, Kris can choose to take roll-over relief and disregard the capital gain of $5,000 attributable to the land.

    As a result, that part of the cost base of the original asset attributable to   the replacement land ($75,000) forms the first element of its cost base, not its market value ($80,000) when it was acquired.

    Last modified: 18 Sep 2009QC 18323