Edited version of private ruling

Authorisation Number: 1011839740343

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Ruling

Subject: Capital gains tax and amalgamated block of land - crown lease and rollover relief

Question 1: Will a capital gains tax (CGT) event A1 occur upon the amalgamation of the two Crown land blocks into one Crown block of land with joint owners?

Answer: No.

Question 2

Upon amalgamation of the two Crown blocks land and the issue of a new Crown lease in joint names will you be entitled rollover relief?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You and a family member (person A) hold a Crown lease over adjacent residential blocks of land.

The blocks of land are post-CGT assets and have been held as investment properties.

You and person A will each surrender your rights to the original Crown leases under a deed.

The two blocks of land will be amalgamated into one block of land in mid 2011.

You and person A will be granted a new Crown lease over the amalgamated blocks of land.

A deed is being established to reflect that you and person A will be entitled to possession of specified percentages of the consolidated block of land, as joint tenants

You and person A will enter into a joint venture with a property developer, with the intention of developing the vacant land and selling residential units.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 104-25
Income Tax Assessment Act 1997 Subsection 112-25 (4)
Income Tax Assessment Act 1997 Section 118-125
Income Tax Assessment Act 1997 Section 124-10
Income Tax Assessment Act 1997 Section 124-15
Income Tax Assessment Act 1997 subsection 124-70(b)
Income Tax Assessment Act 1997 Section 124-575
Income Tax Assessment Act 1997 Section 124-585
Income Tax Assessment Act 1997 Section 124-590
Income Tax Assessment Act 1997 Section 124-600
Land Act 1925 Section 14
Land Act 1925 Section 15
Land Act 1925 Section 60
Australian Capital Territory (Planning and Land Management) Act 1988 Section 29

Reasons for decision

You only make a capital gain or capital loss if a CGT event happens to a CGT asset that you own. The Crown lease that you own is a CGT asset.

In your case, there are two possible CGT events that may apply and they are CGT event A1 and CGT event C2.

CGT event A1 occurs when you dispose of CGT asset. The time of the event is when you enter into the contract for the disposal or if there is no contract - when the change of ownership occurs.

CGT event C2 happens if ownership of an intangible CGT asset ends by the asset expiring or by it being redeemed, cancelled, released, discharged, satisfied, abandoned, surrendered or forfeited.

In your case, the most relevant CGT event is a CGT event C2.

While the ending of your Crown lease will constitute a CGT event C2 event for cancellation or similar ending, the rollover provisions automatically apply where a Crown lease is renewed or you are granted an estate in fee simple and you are able to defer the CGT event until later disposal of the land.

In your circumstances, you and person A are both surrendering your original Crown leases on your respective blocks of land to amalgamate the blocks with joint ownership. This land amalgamation relates to the same land you each held under your original Crown leases.

Accordingly, any capital gain or capital loss made on the surrendering of your original Crown lease is disregarded as rollover relief applies. The capital gain or capital loss is deferred until the expiry of the new Crown lease or the disposal of the property.

Note: Depending upon a number of factors such as the size and the development undertaken by you and person A upon the construction of the residential units, there is a possibility that you could be considered as operating as business. Therefore, the proceeds from the disposal of the residential units would then be assessable as ordinary income.