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Edited version of your private ruling
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Ruling
Subject: Capital gains tax - replacement asset rollover
Question and answer
Are you able to apply the replacement roll over to the purchase of a new rental property?
Yes.
This ruling applies for the following period:
Year ending 30 June 2012
The scheme commenced on:
1 July 2011
Relevant facts and circumstances
You had a rental property.
This property was destroyed.
The property was used as a rental property for the whole of your ownership period.
You received insurance compensation.
You are intending on purchasing another rental property.
You will use all of the insurance compensation payment to purchase the rental property.
You will purchase the property at market value.
You will have more than 50% share in the property.
The title deed will reflect the shares as tenants in common.
The property will be rented out from settlement.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 104-20.
Income Tax Assessment Act 1997 Section 124-70.
Income Tax Assessment Act 1997 Paragraph 124-70(1)(b).
Income Tax Assessment Act 1997 Subsection 124-70(2).
Reasons for decision
Loss or destruction of an asset
CGT event C1 happens under section 104-20 of the ITAA 1997 when a CGT asset is lost or destroyed.
You may be able to obtain a rollover after an asset is lost or destroyed under section 124-70(1)(b). You must receive money or another CGT asset or both as compensation for the event or under an insurance policy against the risk of loss or destruction of the asset (subsection 124-70(2)).
If you receive money:
As your original property was destroyed and you received money for the event happening from an insurance policy, you may have the option of choosing roll-over under section 124-75 of the ITAA 1997. You may choose roll-over only if:
· you incur expenditure in acquiring another CGT asset or
· part of the original asset is lost or destroyed and you incur expenditure of a capital nature in repairing or restoring it.
Subsection 124-75(3) states that you must incur at least some of the expenditure:
· no earlier than one year before the event happens,
· within one year after the end of the income year in which the event happens, or
· within such further time as the Commissioner allows with special circumstances.
Replacement asset:
Section124-75 states that you are required to use the replacement asset for a reasonable time after you have acquired it, for the same purpose as the original asset.
In your case your rental property was destroyed, you received an insurance payment and you will purchase another rental property. You will use the whole of the insurance payment to purchase the replacement rental property.
This property will be purchased within 1 year after the end of the income year in which the event occurred.
You are eligible to choose the CGT roll over for the loss of your property.
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