ATO Interpretative Decision
ATO ID 2003/252
Income Tax
CGT Dairy industry deregulation: cancellation of quotas - capital lossFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Did CGT event C2 in section 104-25 of the Income Tax Assessment Act 1997 (ITAA 1997) happen on the cancellation of milk quotas under legislation that deregulated the dairy industry?
Decision
Yes. CGT event C2 in section 104-25 of the ITAA 1997 happened on the cancellation of milk quotas under legislation that deregulated the dairy industry.
Facts
The Australian dairy industry was deregulated on 1 July 2000. Prior to deregulation, dairy farmers in New South Wales, Western Australia and Queensland held market milk quotas to supply market (drinking) milk at certain prices.
Deregulation involved, among other things, Commonwealth legislation which provided for 2 types of payments to dairy farmers as follows:
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- dairy structural adjustment program (DSAP) payments - being quarterly payments receivable over an 8 year period.
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- dairy exit payments - available for farmers who chose to leave agriculture.
Deregulation also involved the states repealing existing legislation that provided for guaranteed producer prices for market milk. The quota arrangements that existed in New South Wales, Western Australia and Queensland were accordingly, abolished.
Reasons for Decision
Under subsection 104-25(1) of the ITAA 1997, CGT event C2 happens if your ownership of an intangible CGT asset ends by the asset being, among other things, cancelled. Milk quotas previously held by dairy farmers were statutory licences and intangible CGT assets.
The state legislation enacted in New South Wales, Western Australia and Queensland that deregulated the dairy industry had the effect of cancelling the existing milk quotas in those states, and accordingly, the dairy farmers' ownership of those quotas ended. CGT event C2 in section 104-25 of the ITAA 1997 therefore happened.
Whether a dairy farmer makes a capital loss from the CGT event depends on the capital proceeds from the cancellation and the reduced cost base of the quotas. The quarterly DSAP payments received and any dairy exit payment received are not considered to be capital proceeds from the cancellation of the quotas. Therefore, if no other amounts have been received as compensation for the cancellation of the quota, a dairy farmer will make a capital loss equal to the reduced cost base of the quota. If the quota was acquired before 20 September 1985, the capital loss is disregarded.
As the deregulation legislation in the above states took effect on or after 1 July 2000, the CGT event happened in the 2000-2001 income year and any capital loss is made in that year.
Date of decision: 7 February 2003Year of income: Year ending 30 June 2001
Legislative References:
Income Tax Assessment Act 1997
section 104-25
subsection 104-25(1)
ATO ID 2003/250
ATO ID 2003/251
Keywords
Agriculture
Capital gains
Capital gains tax
Capital receipts
Capital losses offset
Dairy industry
Grants of financial assistance & funding
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 7 February 2003 | Original statement |
| 19 February 2010 | Archived |