ATO Interpretative Decision
ATO ID 2004/52
Income Tax
Capital gains tax: Water rights - statutory licence rolloverFOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is the statutory licence rollover provided by section 124-140 of the Income Tax Assessment Act 1997 (ITAA 1997) available, when the taxpayer's water licence under Division 3 of Part 2 of the Water Act 1912 (NSW) (Water Act) is replaced with equivalent entitlements under the Water Management Act 2000 (NSW) (WMA)?
Decision
Yes. The statutory licence rollover provided by section 124-140 of the ITAA 1997 is available, when the taxpayer's water licence under Division 3 of Part 2 of the Water Act is replaced with equivalent entitlements under the WMA.
Facts
The taxpayer held a water licence under Division 3 of Part 2 of the Water Act. The WMA replaced the Water Act. Under the WMA, the taxpayer's licence under the Water Act expired, and was then replaced with equivalent entitlements.
The expired licence was replaced with an access licence and, to the extent necessary to preserve underlying rights, a water management work approval and a water use approval:
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- To the extent that the expired licence allowed the taking of a specified quantity of water, it was replaced with an access licence for the same quantity of water.
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- To the extent that it allowed the use of a water management work, it was replaced with a water management work approval for the same work.
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- To the extent to which the rights under the expired licence were not covered by an access licence and a water management work approval, it was replaced with a water use approval allowing the use of water on the land to which the expired licence related, subject to similar restrictions.
Reasons for Decision
Section 124-140 of the ITAA 1997 provides for rollover relief in specified cases where a statutory licence is renewed or extended.
The taxpayer's licence expired under subclause 9(1) of Schedule 9 of the WMA. This expiry fell within paragraph 104-25(1)(c) of the ITAA 1997 as a CGT event C2. The licence under the Water Act was then replaced under the same sub-clause with equivalent entitlements which, being statutory rights, also satisfied the definition of 'CGT asset'.
Rollover of any gain arising under CGT event C2 is available if paragraphs (a) and (b) of subsection 124-140(1) of the ITAA 1997 are satisfied, and the licence is a statutory licence, as defined in subsection 124-140(3) of the ITAA 1997. The licence in this case meets this definition. The definition of 'statutory licence' also covers access licences, water management work approvals and water use approvals that are issued under the WMA.
The expiry of the licence under the Water Act satisfies paragraph 124-140(1)(a). The new statutory licences under the WMA are granted in respect of the same underlying activity on substantially similar terms. Ownership of the expired statutory licence is the main reason for its renewal under the WMA (paragraph (b) of subsection 124-140(1) of the ITAA 1997).
Therefore, the taxpayer qualifies for rollover relief under Subdivision 124-A of the ITAA 1997 by satisfying the conditions set out in section 124-140 of the ITAA 1997.
Date of decision: 15 December 2003Year of income: Year ending 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
paragraph 104-25(1)(c)
subsection 108-5(1)
Subdivision 124-A
section 124-140
paragraph 124-140(1)(a)
subsection 124-140(3)
Division 3 of Part 2 Water Management Act 2000 (NSW)
subclause 9(1) of Schedule 9
Related Public Rulings (including Determinations)
Taxation Determination TD 34
Taxation Determination TD 35
Taxation Determination TD 36
ATO ID 2003/1128
ATO ID 2004/5
Keywords
Capital gains tax
CGT assets
CGT events C1-C3 - end of a CGT asset
CGT replacement asset roll-over
Statutory licences
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 15 December 2003 | Original statement |
| 29 August 2008 | Archived |