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  • Other CGT events affecting real estate
    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

    CGT event B1 happens to real estate if you enter into a terms contract. Generally speaking, a terms contract is one where the purchaser is entitled to possession of the land or the receipt of rents and profits before becoming entitled to a transfer or conveyance of the land (that is, before completing the purchase by paying the balance of the purchase price and receiving the instrument of transfer and title deeds).

    CGT event B1 happens when use and enjoyment of the land is first obtained by the purchaser. Use and enjoyment of the land from a practical point of view takes place at the time the purchaser gets possession of the land or the date the purchaser becomes entitled to the receipt of rents and profits.

    If the contract falls through before completion and title to the land does not pass to the purchaser, you may be entitled to amend your assessment for the year in which CGT event B1 happened.

    CGT event C1 happens if an asset is lost or destroyed. This event may happen if for example a building on your land is destroyed by fire. Your capital proceeds for CGT event C1 happening include any insurance proceeds you may receive in relation to the loss or destruction. The market value substitution rule that generally applies if you receive no capital proceeds does not apply if CGT event C1 happens. For more information, see chapter 7.

    CGT event D4 happens if you enter into a conservation covenant over land that you own. From 1 July 2002, CGT event D4 may apply if you receive no capital proceeds for the event. (Note that the market value substitution rule that generally applies if you receive no consideration for a CGT event does not apply if CGT event D4 happens.)

    A 'conservation covenant' is a covenant that:

    • restricts or prohibits certain activities on the land that could degrade the environmental value of the land
    • is permanent and binding on current and future land owners (by way of registration on the title to the land where possible), and
    • is approved by the Minister for the Environment and Heritage (including those entered into under a program approved by that Minister).

    If CGT event D4 happens, you calculate your capital gain by comparing your capital proceeds from entering into the covenant with a portion of the cost base of the entire land over which the covenant is granted.

    Similarly, you calculate your capital loss by comparing your capital proceeds from entering into the covenant with a portion of the reduced cost base of the entire land over which the covenant is granted.

    The relevant portion of the cost base or reduced cost base is calculated using this formula:

    A × (B ÷ C)

    Where:

    A is cost base (reduced cost base)

    B is capital proceeds from entering into covenant of land

    C is those capital proceeds plus the market value of the land just after you enter into the covenant

    As the conservation covenant will affect the value of the entire land you must use the cost base of the entire land in calculating the cost base apportioned to the covenant. This is the case even if the covenant specifically states within its terms that the restrictions as to use only apply to part of the land.

    CGT event D2 happens if you grant an option to a person or an entity or renew or extend an option that you had granted.

    The amount of your capital gain or capital loss from CGT event D2 is the difference between what you receive for granting the right and any expenditure you incurred in relation to it. The CGT discount does not apply to CGT event D2.

    Example: Granting of an option

    You are approached by Colleen who is interested in buying your land. On 30 June 2002, you granted her an option to purchase your land within 12 months for $200,000. Colleen pays you $10,000 in respect of the grant of the option. You incur legal fees of $500. You made a capital gain in the 2001-02 income year of $9,500.

    End of example
    Last modified: 25 Feb 2020QC 27448