ATO Interpretative Decision
ATO ID 2002/769 (Withdrawn)
capital gains tax
Capital gains tax: CGT event F5: payment for changing leaseFOI status: may be released
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This ATO ID is withdrawn as the matter dealt with is a straight application of the law and does not contain an interpretative decision.This document incorporates revisions made since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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Will the lessor make a capital gain or capital loss under CGT event F5 (section 104-130 of the Income Tax Assessment Act 1997 (ITAA 1997)) on receipt of a payment from the lessee to waive a term of the lease?
Decision
Yes. CGT event F5 happened at the time when the lease term was waived (subsection 104-130(2) of the ITAA 1997). The lessor will make a capital gain if the capital proceeds from the event are more than the expenditure the lessor incurs in relation to the waiver. The lessor will make a capital loss if the capital proceeds are less than the expenditure incurred (subsection 104-130(3) of the ITAA 1997).
Facts
The taxpayer is the owner of a property which was leased for a number of years.
Under the lease agreement, the lessee was required to paint the property prior to vacating the premises.
The property was not painted in accordance with this term of the lease.
At the termination of the lease the taxpayer accepted a one off payment from the lessee to waive this term of the lease.
Reasons for Decision
Subsection 104-130(1) of the ITAA 1997 states that CGT event F5 happens if a lessor receives a payment from the lessee for agreeing to vary or waive a term of a lease.
In this situation, the taxpayer received an amount from the lessee for waiving the lessee's obligation under the lease to paint the property prior to vacating the premises. CGT event F5 happened at the time that the term was waived (subsection 104-130(2) of the ITAA 1997).
The lessor will make a capital gain if the proceeds from the event are more than the expenditure the lessor incurs that directly relate to the variation or waiver, such as legal costs for drawing up a formal waiver agreement. The lessor will make a capital loss if the capital proceeds are less than the expenditure incurred (subsection 104-130(3) of the ITAA 1997).
Date of decision: 4 June 2002Year of income: Year ending 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
subsection 104-130(1)
subsection 104-130(2)
subsection 104-130(3)
Keywords
Capital gains tax
CGT events
CGT events F1-F5 - leases
ISSN: 1445-2782
| Date: | Version: | |
| 4 June 2002 | Original statement | |
| You are here | 12 May 2006 | Archived |