ATO Interpretative Decision
ATO ID 2003/106
Capital Gains Tax
CGT - termination of cartage agreement - CGT event C2FOI status: may be released
This version is no longer current. Please follow this link to view the current version. |
-
This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Does CGT event C2 in section 104-25 of the Income Tax Assessment Act 1997 (ITAA 1997) happen upon the termination of an agreement which the taxpayer entered into to cart product for another party?
Decision
Yes, CGT event C2 in section 104-25 of the ITAA 1997 happens upon the termination of an agreement which the taxpayer entered into to cart product for another party.
Facts
The taxpayer entered into an oral cartage agreement with another party. On entering into this agreement the taxpayer acquired the right to cart the other party's products. The agreement represented the whole business carried on by the taxpayer.
After several years the agreement was terminated and an amount was paid for the cancellation of the agreement. On accepting the payment the taxpayer lost their rights under the agreement. The taxpayer was put out of business by the cancellation of the agreement.
The taxpayer signed a Deed of Release when they received the payment. The Deed of Release provided that the payment was '...in full and final satisfaction of all suits, claims and/or demands whatsoever which [the taxpayer] now have or may hereafter have in or arising out of any arrangements under which [the taxpayer] carted product for [the other party]...'.
Reasons for Decision
On entering into the agreement with the other party, the taxpayer acquired legal or equitable rights, for example, the right to enforce the resulting contractual obligations. The agreement was therefore a CGT asset under section 108-5 of the ITAA 1997.
CGT event C2 in section 104-25 of the ITAA 1997 happens if your ownership of an intangible CGT asset ends in certain ways. The taxpayer's CGT asset (their rights under the agreement) was an intangible asset and the taxpayer's ownership of that asset ended by the asset being released or cancelled when the taxpayer entered into the Deed of Release. Accordingly, CGT event C2 happens under subsection 104-25(1) of the ITAA 1997.
The capital proceeds from the CGT event happening is the amount received for the termination of the agreement. A capital gain will arise if those proceeds are greater than the right's cost base.
Date of decision: 7 November 2002Year of income: Year ended 30 June 2001
Legislative References:
Income Tax Assessment Act 1997
section 104-25
subsection 104-25(1)
section 108-5
Keywords
Capital gains tax
Capital gains
Capital receipts
CGT capital proceeds
CGT events
CGT events C1-C3 - end of a CGT asset
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 7 November 2002 | Original statement |
| 24 March 2006 | Archived |