Receiving cash or property with a replacement entitlement

Any additional proceeds you receive with a replacement water entitlement that don't take the form of a water entitlement, for example cash, are not eligible for capital gains tax (CGT) rollover.

As a result, you will need to work out the CGT on the ineligible proceeds you receive.

Example: cash with replacement entitlement

Courtney's 100 class A shares in Liquid Water have a cost base of $50 each. The total cost base of her shares is $5,000. Courtney exchanges her 100 shares in Liquid Water for a 100 ML statutory licence and a cash payment of $10,000.

The 100 ML statutory licence has a market value of $90,000.

The class A shares in Liquid Water and the 100 ML statutory licence are water entitlements. As a result, Courtney qualifies for the replacement CGT rollover in relation to the 100 ML statutory licence. However, the cash payment is ineligible proceeds. It would be reasonable for Courtney to calculate her capital gain in the following way: the total market value of Courtney's proceeds from her 100 class A shares is $100,000 – that is, $90,000 for the statutory licence, plus $10,000 for the cash payment.

Consequently, the cash payment represents 10% of her capital proceeds – that is, $10,000 divided by $100,000. Therefore, 10% of the cost base of Courtney's class A shares is attributable to the cash payment – that is, $5 per share.

The total cost base of the class A shares that is attributable to the $10,000 cash payment is $500. Assuming Courtney incurs no other costs in relation to the class A shares, she realises a capital gain of $9,500 – that is, $10,000 capital proceeds less a $500 cost base.

End of example
    Last modified: 24 Aug 2016QC 24125