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Edited version of private ruling
Authorisation Number: 1011645095791
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Ruling
Subject: Capital gains tax (CGT)
Questions and answers
1. Does the conversion of a Crown lease to freehold constitute a CGT event?
Yes.
2. Where the conversion of a special Crown lease to freehold constitutes a CGT event is the rulee entitled to capital gains tax roll-over relief under section 124-575 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes.
3. Are you subject to CGT when the freehold property is sold?
No.
This ruling applies for the following period
Year ended 30 June 2014.
The scheme commenced on
1 July 2010.
Relevant facts
Your relative entered into a crown lease for 99 years.
You and your siblings took over the crown lease in before 1985.
The land was offered to you and your siblings as freehold.
After 1985 you and your siblings entered into an agreement to purchase the property as freehold.
The freehold title was issued in after 1985.
You are looking at selling the property in the next three years or so.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Subsection 108-55(2).
Income Tax Assessment Act 1997 Subsection 124-10(2).
Income Tax Assessment Act 1997 Subsection 124-10(4).
Income Tax Assessment Act 1997 Section 124-575.
Income Tax Assessment Act 1997 Section 124-580.
Income Tax Assessment Act 1997 Section 104-25.
Reasons for decision
Conversion from Crown lease to freehold
A capital gain or capital loss is made as a result of a CGT event happening to a CGT asset.
When a Crown lease is converted to a freehold title, a CGT event happens. You surrender a right (the Crown lease) and acquire a new right (the freehold title) as a replacement asset.
A replacement asset roll-over is available on the conversion of a Crown lease to a freehold title.
The roll-over is automatic and any capital gain or capital loss made from the original asset is disregarded.
Where the original Crown lease was acquired before 20 September 1985, the date of acquisition of the replacement asset (freehold) is taken to be the date that the original Crown lease was acquired.
In your case, you acquired the crown lease before 1985. The crown lease was converted into a freehold after 1985. Therefore, in accordance with the replacement asset roll-over, you are taken to have acquired the freehold on the date that the Crown lease was originally acquired.
As the property is taken to have been acquired before 1985 it is not subject to CGT when it is sold.
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