Edited version of private advice

Authorisation Number: 1052275758566

Date of advice: 29 July 2024

Ruling

Subject: CGT - personal use asset

Question

Will the disposal of Property AAA be disregarded under subsection 108-20(3) of the Income Tax Assessment Act 1997 as a personal use asset purchased under $10,000?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2023

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The property at XXXXXXX purchased in XXXX for $XXX.

The property was never used for income producing purpose.

The property has no power connected, running water, gas connection, a water tank, solar panels, aerials, and bathroom facilities.

The property is not used as a hobby farm, house, flat, unit or vacant land.

The property was used for private enjoyment as per the Shire such as not sleeping in the property overnight.

In XXXX, the property was burnt to the ground due to marlaceous acts and investigations did not find the perpetrators.

The boat shed was uninsurable due to the high risk due to its seclusion except for the XXXX insurance.

You incurred other cost such as rates to the shire.

As per the shire, you were required to rebuild another boat shed within XXX years to continue holding the licence. The XXX-year limit can be extended with agreed permission from the Government Department.

You built on crown land in your capacity as caretaker and licence holder on behalf of the Department of XXXX.

The second boat shed was XXm2, and it cost $XX to rebuild.

The shire prohibited any changes to the original building structure and a planning permit was obtained and approved.

You provided an inspection letter that confirmed a mirror image of the previous boat shed was built under close supervision of the shire.

There were no improvements made on the property.

On XX/XX/20XX, the new boat shed was sold for $XX.

The sale transferred the licence rights to the new owners of the property.

A valuation needs to be done for the licence in XXXX on disposal of the second boat shed capital gains tax determination.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 108-20(2).

Income Tax Assessment Act 1997 subsection 118-10(3).

Reasons for decision

You make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985. CGT events are those transactions that occur to a CGT asset that result in you either making a capital gain or capital loss.

You make a capital gain if your capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if you receive more for an asset than you paid for it. You make a capital loss if your reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset, for example, if you receive less for an asset than you paid for it.

A personal use asset is outlined in section 108-20 of the Income Tax Assessment Act 1997 (ITAA 1997) as capital gains tax assets, other than collectables, that are used or kept mainly for personal use or enjoyment of you or your associates.

There are three categories of personal use assets as defined in subsection 108-20(2) of the ITAA 1997 as follows:

1.CGT assets used or kept mainly for personal use or enjoyment.

2.certain options and rights, and

3.certain debts.

Under subsection 118-10(30) of the ITAA 1997, capital gains made from the disposal of personal use assets are disregarded if the asset was acquired for less than $10,000.

Some assets are specifically excluded from being personal use assets as per subsection 108-20(3) of the ITAA 1997. Examples of such assets include land or buildings.

Whether an asset is a personal use asset depends on how the asset is used or kept by the taxpayer or associate of the taxpayer and it is not specifically excluded.

In your case, the boat shed is a building, specifically excluded from being a personal use asset.

The Department of Environment, Land, Water and Planning (DELWP) provides that: Crown land is land owned by the government and the responsibility for the issue of general Crown land licences resides with DELWP, acting on behalf of the Minister for Energy, Environment and Climate Change. A Licence does not convey any exclusive rights to the licensee. A licence provides the right to carry out the activity specified in the licence. A lease differs from a licence in that a licence gives permission to the holder to carry out a permitted activity without the right of exclusive occupation. A licence may be cancelled if the conditions are not met.

The Mornington Peninsula Shire Council Boatshed and Bathing Box Policy was developed to provide a consistent approach to the management of the boat sheds and bathing boxes located on coastal crown land foreshores managed by Council. The structures are free-standing, light weight, relocatable, non-commercial and non-residential used for private use for individuals and families to store beach items, change facilities and shelter.

In your case, you have transferred the licence on disposal of the boat shed.

Section 108-20(3) of the ITAA 1997, excludes certain assets from meeting the criteria of personal use asset for CGT purposes. This includes licences and contractual rights.

The boat shed affixed to the land would be identified as a building or structure upon the land. Therefore, the property will not meet the definition of a personal use asset and will not be exempt from capital gains tax (CGT) as per section 118-10 of the ITAA 1997.

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