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Edited version of private ruling
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Ruling
Subject: Capital gains tax
Question
Does the compensation payment form part of the capital proceeds when calculating capital gains tax?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2009.
The scheme commenced on
1 July 2008.
Relevant facts
You purchased a block of land with a shed on it a number of years ago.
You used this shed as your main residence until you purchased another home xx years ago.
You had no other main residence.
The shed was your home and had the power and water connected and your mail was delivered to the property.
You moved into the property as soon as settlement occurred.
In xxxx the property was purchased by an entity who also paid you compensation.
The compensation package was to cover the costs that would be incurred in purchasing a similar property, removal and storage of the contents, inconvenience, etc
The capital gains tax was apportioned.
You paid the capital gains on the xxxx years that the property was not your main residence.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Subsection 116-20(1).
Reasons for decision
Subsection 116-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that the capital proceeds from a CGT event are the total of:
· the money you have received, or are entitled to receive, in respect of the event happening, and
· the market value of any other property you have received, or are entitled to receive, in respect of the event happening (worked out as at the time of the event).
CGT event A1 in section 104-10 of the ITAA 1997, relating to the disposal of a CGT asset, happened when you disposed of your property to xxxx. The $xx you received for the property is included in the capital proceeds from the CGT event.
The compensation payment of $xx is to be included in the capital proceeds from the disposal of your property as it is an amount received for the event (the loss of the property that was acquired by the State Government agency) happening. The following facts are relevant to that conclusion:
The full payment was received by you at the time of the sale of the property and there was no requirement to use the compensation payment for any particular purpose.
The purchase price plus the additional compensation payment can reasonably be seen as compensation for the loss of the original property. That is, they represent a reasonable assessment of the compensable loss that results from the disposal of your property to the State Government agency.
The fact that amounts included in the compensation payment are calculated under different headings does not determine the character of the payments. The concepts that a payment is for the disposal of the property and part of that payment has an intended use in your hands, are not mutually exclusive.