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Edited version of your written advice
Authorisation Number: 1012810068458
Ruling
Subject: CGT - compulsory acquisition rollover relief
Question 1
Will the purchase of replacement assets in your individual names, rather than in both names as tenants in common, satisfy the requirements of subsection 124-75(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
Question 2
Will the purchase of more than one replacement asset each in your individual names satisfy the requirements of subsection 124-75(2) of the ITAA 1997, where the total purchase of value of your assets does not exceed your own portion of the compensation received for the compulsory acquisition of part of the Property.
Answer
Yes
Question 3
Where you acquire more than one replacement asset each, will each replacement asset retain pre-CGT status, provided the requirements contained in subsections 124-75(3) to 124-75(6) of the ITAA 1997 are met in relation to each asset?
Answer
Yes, provided that the total expenditure on all of the assets you acquire does not exceed 120% of the market value of your share of the compulsorily acquired property on the date of the CGT event.
This ruling applies for the following periods:
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commenced on:
1 July 2014
Relevant facts and circumstances
You are the registered proprietors as tenants in common in equal shares of the land (referred to as the Property).
You acquired the Property prior to 20 September 1985.
The Property has been used by you in carrying on a business in partnership.
A government authority compulsorily acquired part of the Property.
The remaining part of the Property continues to be held by you as tenants in common in equal shares.
An initial offer of compensation has been made, however you are still finalising your claim for compensation pursuant to the Land Acquisition and Compensation Act 1986.
You propose to each individually purchase replacement properties in your own individual names. The cost of each of your replacement asset(s) will not exceed your portion of the compensation received for the compulsory acquisition of part of the Property. You may purchase more than one replacement asset each.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 124-B
Income Tax Assessment Act 1997 Section 108-5
Income Tax Assessment Act 1997 Section 108-7
Reasons for decision
Under the provisions of Subdivision 124-B of the ITAA 1997, an entity may be able to choose to roll-over a capital gain that results from a compulsory acquisition of a capital gains tax (CGT) asset they own.
Where you receive money for the compulsory acquisition, section 124-75 of the ITAA 1997 stipulates the further requirements that must be met in order to choose the rollover:
• you must incur expenditure in acquiring another CGT asset that is not a depreciating asset (the replacement asset) (subsection 124-75(2) of the ITAA 1997)
• as least some of that expenditure must be incurred no earlier than one year before the CGT event happens and no later than one year after the end of the income year in which the CGT event happens (or a longer time allowed by the Commissioner) (subsection 124-75(3) of the ITAA 1997)
• the replacement asset must be either
• used in the same business that the original asset was used in just prior to the compulsory acquisition for a reasonable time after you acquire it; or
• be used for the same or similar purpose as the original asset for a reasonable time after you acquire it (subsection 124-75(4) of the ITAA 1997)
• the replacement asset cannot become an item of your trading stock just after you acquire it nor can it be a depreciating asset (subsection 124-75(5) of the ITAA 1997); and
• the replacement asset cannot become a registered emissions unit of yours just after you acquire it (subsection 124-75(6) of the ITAA 1997)
Acquiring a replacement CGT asset or assets
A CGT asset is defined in section 108-5 of the ITAA 1997 as any kind of property or a legal or equitable right that is not property. If you own part of or an interest in any kind of property, that interest is a CGT asset.
For CGT purposes, if you are a joint tenant you are treated as if you are a tenant in common owning equal shares in the asset (section 108-7 of the ITAA 1997).
In this case, you owned the original asset as tenants in common, you are each considered to own a separate CGT asset being your respective interest in the Property.
Part of the Property has been compulsorily acquired and you will receive money in compensation for the acquisition. If you each purchase replacement asset(s) in your own individual names (rather than one asset as tenants in common) you will each have incurred expenditure to acquire another CGT asset. Accordingly, you will meet the requirements of subsection 124-75(2) of the ITAA 1997.
Taxation Determination TD 2000/41 provides that there are no restrictions on the number of CGT assets which may be treated as replacement assets for the rollover contained in Subdivision 124-B of the ITAA 1997 provided that each replacement asset satisfies the other relevant requirements of the Subdivision.
You have indicated that you may acquire more than one replacement asset each but that your total expenditure in acquiring replacement assets will not exceed your portion of the compensation received. In accordance with TD 2004/41 each asset will still be considered a replacement asset for the purposes of the rollover, provided the other requirements are met.
Pre-CGT assets
If the compulsorily acquired asset was acquired by you prior to 20 September 1985, section 124-85(3) of the ITAA 1997 provides that your replacement asset will be taken to have been acquired before that date provided that the expenditure to acquire it is not more than 120% of the market value of the original asset at the time the CGT event occurred.
In this case, part of your pre-CGT asset has been compulsorily acquired. If you each acquire more than one replacement asset (and each asset meets the requirements of subsection 124-75(3) to (6) of the ITAA 1997 as listed above), each replacement asset will retain its pre-CGT status provided that your individual total expenditure on all of the assets you each acquire does not exceed 120% of the market value of your share of the compulsorily acquired property on the date of the CGT event.
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