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Edited version of your private ruling
Authorisation Number: 1012188748363
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Ruling
Subject: Capital gains tax - creation of easement
Question 1:
Is capital gains tax (CGT) payable on the creation of an easement over Lot 2 at property B in favour of Lot A at property A?
Answer:
No.
Question 2:
Is CGT payable on the creation of an easement over Lot 2 at property B in favour of Lot B at property A?
Answer:
No.
This ruling applies for the following period
Year ended 30 June 2013
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.
Prior to 20 September 1985, your parent (the deceased) purchased a property (property A).
The deceased established property A as their main residence and resided there until their death last year.
Prior to the deceased's death they subdivided property A into two lots, Lot A and Lot B.
Under the deceased's will their children, you and your sibling are to receive an equal share of their estate.
Lot A will be transferred to you and Lot B will be transferred to your sibling.
You and your spouse own a property (property B), which is your main residence.
Property B is located beside property A.
You and your spouse subdivided property B into two lots Lot 1 and Lot 2.
You and your spouse will create an easement on Lot 2 to Lot A and Lot B.
No consideration will be received for the creation of the easement.
Upon the creation of the easement on property A by the trustee of your parent's estate Lot A will be transferred to you.
You have provided a copy of the following documentation to support your application and these documents are to be read with and forms part of your application for the purpose of this ruling:
· copy of the will of the deceased
· death certificate
· valuation of easement letters, and
· schematic diagram of property A and property B.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-35
Income Tax Assessment Act 1997 Section 116-30
Income Tax Assessment Act 1997 Section 108-5
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
A CGT asset is defined as any kind of property, or legal or equitable right that is not property.
An easement is a right over someone else's land or property. Therefore, upon the creation of an easement over Lot A and Lot B for the benefit of an adjoining owner is a CGT asset.
CGT event D1 will occur upon the creation of the easement. The time of the event is when you enter into the contract or create the easement.
The granting of an easement is considered to be an assessable capital gain, as it is considered to be the granting of an easement is not a part disposal of land. Rather, it is an acquisition of a new asset/interest in the land. You are taken to have disposed of the easement to the grantee at the time of the creation.
Generally, if you receive no capital proceeds from a CGT event you are taken to have received the market value of the CGT asset that is the subject of the event at the time the event occurs.
The market value substitution rule does not apply to a CGT event D1 where no capital proceeds are received.
In your case, as you will not receive any capital proceeds upon the creation of the easement, you will not make a capital gain as no capital proceeds will be received by you but you may make a capital loss if incidental costs are incurred that relate to CGT event D1.