ATO Interpretative Decision

ATO ID 2003/251

Income Tax

CGT Dairy industry deregulation: disposal of payment right - capital gain
FOI 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This version is no longer current.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.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 A1 in section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) happen on the sale of a dairy structural adjustment program (DSAP) payment right unit to another entity?

Decision

Yes. CGT event A1 in section 104-10 of the ITAA 1997 happens on the sale of a DSAP payment right unit to another entity.

Facts

The Australian dairy industry was deregulated on 1 July 2000. Deregulation involved among other things Commonwealth legislation which provided for 2 types of payments to dairy farmers as follows:

•: dairy structural adjustment program (DSAP) payments - being quarterly payments receivable over an 8 year period.
•: dairy exit payments - available for farmers who chose to leave agriculture.

With respect to the DSAP payments, farmers were granted a DSAP payment right of a certain value based on their past production, entitling them to a future stream of payments. The payment rights are transferable.

Reasons for Decision

CGT event A1 in section 104-10 of the ITAA 1997 happens if a taxpayer disposes of a CGT asset. A disposal takes place if a change of ownership occurs from the taxpayer to another entity.

Under section 108-5 of the ITAA 1997, a CGT asset is any kind of property or a legal or equitable right that is not property. Each DSAP payment right consists of a number of units. The units are transferable, with each unit having a face value, and the registered owner being entitled to quarterly payments over a period of years. Accordingly, a payment right and the units are property and therefore CGT assets under paragraph 108-5(1)(a) of the ITAA 1997.

CGT event A1 in section 104-10 of the ITAA 1997 will therefore happen on the disposal of a DSAP payment right unit. A capital gain will be made from the CGT event if the capital proceeds from the disposal are more than the cost base of the payment right unit.

For dairy farmers to whom the original grant of a payment right was made upon deregulation, the cost base of the payment right units is nil (except for any incidental costs) because nothing was paid or given in respect of acquiring the payment right. The market value substitution rule in section 112-20 of the ITAA 1997 does not apply because the acquisition of the payment right resulted from CGT event D1 (creation of rights) happening.

The taxpayer will therefore make a capital gain, being the amount of the capital proceeds less any incidental costs.

Date of decision: 7 February 2003

Year of income: Year ending 30 June 2001

Legislative References:
Income Tax Assessment Act 1997
   section 104-10
   section 108-5
   paragraph 108-5(1)(a)
   section 112-20

Related ATO Interpretative Decisions
ATO ID 2003/250
ATO ID 2003/252

Keywords
Agriculture
Capital gains
Capital gains tax
Capital receipts
Capital losses offset
Dairy industry
Grants of financial assistance & funding

Business Line: CGT and Losses Centre of Expertise

Date of publication: 24 April 2003

ISSN: 1445-2782

history

	Date:	Version:
You are here	7 February 2003	Original statement
	23 December 2011	Archived

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).