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Edited version of your private ruling
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Ruling
Subject: Capital gains tax - easement
Question 1
Does the additional payment form part of the consideration that you received for the easement?
Answer
Yes
Question 2
Are you required to include the additional payment in your 20XX-XX income tax return?
Answer
Yes
This ruling applies for the following periods:
Year ended 30 June 2011
Year ended 30 June 2012
The scheme commences on:
01 July 2010
Relevant facts and circumstances
You own a property.
You signed a deed of option to create an easement on your property.
This option was executed in 20XX and at this time you received the consideration payable under the easement agreement.
Due to delay in construction of the easement you received an additional payment in 20XX.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-35
Reasons for decision
Section 104-35 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a CGT event D1 happens when you create a contractual right or other legal or equitable right in another entity. The time of the event is when you enter into the contract or create the right.
An easement is a right over someone else's land or property. If an easement is created as a result of the exercise of an option then this will trigger a CGT event D1.
In your case, you signed a deed of option to create an easement on your property. This option was executed in 20XX and at this time you received the consideration payable under the easement agreement.
Due to delays in the construction of the easement you received an additional payment in 20XX. This was paid as per the agreement executed in 20XX.
The relevant clause in the agreement provides that if the compensation amount is in excess of the easement purchase price then the easement purchase price will be increased to the compensation amount.
As such, although the additional payment was received in the 20XX-XX financial year, it will still form part of the consideration received for the easement.
Accordingly, as the option for the easement was executed in 20XX, you will have to include the additional payment in your 20XX-XX income tax return.
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