ATO Interpretative Decision
ATO ID 2003/346
Income Tax
CGT small business concessions: basic conditions - CGT event happening in relation to a CGT asset - forfeited depositFOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
If CGT event H1 (about forfeiture of deposits) in section 104-150 of the Income Tax Assessment Act 1997 (ITAA 1997) happens, does that CGT event happen 'in relation to a CGT asset of yours' for the purposes of paragraph 152-10(1)(a) of the ITAA 1997 (one of the basic conditions for small business relief)?
Decision
Yes. If CGT event H1 in section 104-150 of the ITAA 1997 happens, that CGT event happens 'in relation to a CGT asset of yours' for the purposes of paragraph 152-10(1)(a) of the ITAA 1997.
Facts
The taxpayer owns farming land acquired after 19 September 1985 that is an active asset.
The taxpayer entered into a contract to sell the land and the prospective purchaser paid the taxpayer a deposit.
The prospective purchaser did not proceed with the purchase of the land and forfeited their deposit.
The taxpayer decided not to sell the land and took it off the market.
Reasons for Decision
One of the basic conditions for small business CGT relief is that a CGT event happens in relation to a CGT asset of yours in an income year (paragraph 152-10(1)(a) of the ITAA 1997).
CGT event H1 in section 104-150 of the ITAA 1997 happens if a deposit paid to you is forfeited because a prospective sale or other transaction does not proceed.
Taxation Ruling TR 1999/19 deals with the treatment of forfeited deposits. Paragraph 6 of the Addendum to that Ruling effectively provides that CGT event H1 does not happen if the forfeiture of a deposit occurs within a 'continuum of events' constituting a later disposal of post-CGT real estate. Instead, the deposit forms part of the capital proceeds from CGT event A1 in section 104-10 of the ITAA 1997 happening to the land.
In this case the land has remained unsold. The forfeiture of the deposit is therefore not part of a 'continuum of events' constituting the later disposal of the land, as that expression is used in Taxation Ruling TR 1999/19. Accordingly, CGT event H1 in section 104-150 of the ITAA 1997 happens.
The words 'in relation to' in paragraph 152-10(1)(a) of the ITAA 1997 are wide enough to allow reference to an underlying asset such as land that was the subject of a sale which has fallen through. CGT event H1 happens in relation to the underlying land. Paragraph 152-10(1)(a) of the ITAA 1997 can therefore be satisfied for a capital gain made from CGT event H1.
Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
section 104-10
section 104-150
paragraph 152-10(1)(a)
paragraph 152-10(1)(d)
Related Public Rulings (including Determinations)
Taxation Ruling TR 1999/19
Taxation Ruling TR 1999/19A - Addendum
Keywords
Basic conditions for relief
Capital gains tax
Capital Gains Tax CoE
CGT events
CGT events H1-H2 - special capital receipts
CGT small business relief
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 28 March 2003 | Original statement |
| 3 July 2015 | Updated statement |