ATO Interpretative Decision
ATO ID 2004/566 (Withdrawn)
Income Tax
Capital Gains Tax: discount capital gain - lease surrender receipt by lessorFOI status: may be released
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The ATO ID is withdrawn as it is superseded by Taxation Ruling TR 2005/6.This document incorporates revisions made since original publication.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Can an amount received by a lessor as a lease surrender receipt satisfy the 12-month rule under subsection 115-25(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The 12-month rule under subsection 115-25(1) of the ITAA 1997 will be satisfied if CGT event C2 happens to the lessor at least 12 months after the grant of the lease.
Facts
A taxpayer is a lessor of a commercial property.
The taxpayer granted a lease over the property. More than 12 months later but prior to the expiry of the lease, the lessee decided that it did not want to continue with the lease and made an offer to the taxpayer for the surrender of the lease.
The taxpayer accepted the offer and received from the lessee a lease surrender payment.
Reasons for Decision
Subsection 115-25(1) of the ITAA 1997 provides that a capital gain is only a discount capital gain if it results from a CGT event happening to a CGT asset that was acquired at least 12 months before the CGT event.
The lessor acquires a CGT asset in granting the lease at the time it enters into the lease agreement, or if there is no contract, at the start of the lease (subsection 109-5(2) of the ITAA 1997).
A CGT event C2 happens when the lessor receives an amount for the surrender of its rights under the lease agreement. The CGT event happens at the time the lessor enters into the contract for the surrender of the lease, or if there is no contract, when the lease ends (subsection 104-25(2) of the ITAA 1997).
The lessor will make a capital gain if the capital proceeds from ending the lease (lease surrender receipt) are more than the asset's cost base.
As the agreement to end the lease was made more than 12 months after the lessor acquired the CGT asset (the lease), the 12 month rule for a discount capital gain will be satisfied.
Date of decision: 5 June 2003Year of income: Year ending 30 June 2000
Legislative References:
Income Tax Assessment Act 1997
subsection 104-25(2)
subsection 109-5(2)
subsection 115-25(1)
ATO ID 2003/520
Keywords
CGT 50% individual discount
CGT assets
CGT event C1-C3 - end of a CGT asset
Termination of leases
Time of CGT event
ISSN: 1445-2782
| Date: | Version: | |
| 5 June 2003 | Original statement | |
| You are here | 15 January 2010 | Archived |