ATO Interpretative Decision

ATO ID 2004/53

Income Tax

Capital gains tax: Water rights - permanent transfer of share and extraction components of access licence - CGT event A1
FOI status: may be released

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 the permanent transfer by the taxpayer of rights in accordance with section 71D of the Water Management Act 2000 (NSW) (WMA), in relation to the share and extraction components of an access licence, constitute a CGT event A1 within the terms of subsection 104-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The permanent transfer by the taxpayer of rights in accordance with section 71D of the WMA, in relation to the share and extraction components of an access licence, constitutes a CGT event A1 within the terms of subsection 104-10(1) of the ITAA 1997.

Facts

The taxpayer holds an access licence under section 63 of the WMA. The access licence consists of share and extraction components as defined in subsection 56(1) of the WMA.

The taxpayer permanently transfers 100% of the value of the share and extraction components in accordance with section 71D of the WMA to the holder of another access licence. The share and extraction components of the taxpayer's access licence are of zero value after the transfer.

Reasons for Decision

Subsection 104-10(1) of the ITAA 1997 states that CGT event A1 happens if you dispose of a CGT asset. Under subsection 104-10(2) of the ITAA 1997, you dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law.

Under subsection 108-5(1) of the ITAA 1997, the term 'CGT asset' is defined as:

(a): any kind of property; or
(b): a legal or equitable right that is not property.

Under subsection 108-5(2) of the ITAA 1997, the term 'CGT asset' includes part of, or an interest in, an asset referred to in subsection 108-5(1) of the ITAA 1997.

Under subsection 960-100(1) of the ITAA 1997, an entity is defined as any of the following:

(a): an individual;
(b): a body corporate;
(c): a body politic;
(d): a partnership;
(e): any other unincorporated association or body of persons;
(f): a trust;
(g): a superannuation fund.

The permanent transfer of legal rights from the taxpayer to another entity in accordance with the procedure set out in section 71D of the WMA, constitutes a change in the ownership of those rights. The legal rights themselves are CGT assets within the terms of subsection 108-5(1) of the ITAA 1997. It follows that CGT event A1 happens pursuant to the permanent transfer of those rights.

Date of decision: 12 January 2004

Year of income: Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   subsection 104-10(1)
   subsection 104-10(2)
   subsection 108-5(1)
   subsection 108-5(2)
   subsection 960-100(1)

Water Management Act 2000 (NSW)
   subsection 56(1)
   section 63
   section 71D

Related ATO Interpretative Decisions
ATO ID 2003/1128
ATO ID 2004/5
ATO ID 2004/52
ATO ID 2004/54

Keywords
Capital gains tax
CGT assets
CGT event A1-disposal of a CGT asset
Statutory licences

Business Line: Private Groups and High Wealth Individuals

Date of publication: 23 January 2004

ISSN: 1445-2782

history

	Date:	Version:
You are here	12 January 2004	Original statement
	29 August 2014	Archived

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