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Edited version of your private ruling
Authorisation Number: 1012603837127
Ruling
Subject: Capital gains tax
Question 1
Does the conversion of a Crown lease to freehold constitute a capital gains tax event?
Answer
Yes.
Question 2
Where the conversion of a special Crown lease to freehold constitutes a capital gains tax event is the rulee entitled to capital gains tax roll-over relief under section 124-575 of the ITAA 1997?
Answer
Yes.
Question 3
Are you subject to capital gains tax when the freehold property is sold?
Answer
No
This ruling applies for the following periods
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
Relevant facts
Your xxx entered into a crown lease for 99 years in xxxx.
You and your siblings took over the crown lease before 20 September 1985.
The land was offered to you and your siblings as freehold after 20 September 1985.
In xxxx you and your siblings entered into an agreement to purchase the property as freehold.
The freehold title was issued in xxxx.
You are considering selling the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Subsection 108-55(2)
Income Tax Assessment Act 1997 Subsection 124-10(2)
Income Tax Assessment Act 1997 Subsection 124-10(4)
Income Tax Assessment Act 1997 Section 124-575
Income Tax Assessment Act 1997 Section 124-580
Income Tax Assessment Act 1997 Section 104-25
Reasons for decision
Conversion from Crown lease to freehold
A capital gain or capital loss is made as a result of a capital gains tax (CGT) event happening to a CGT asset.
When a Crown lease is converted to a freehold title, a CGT event happens. You surrender a right (the Crown lease) and acquire a new right (the freehold title) as a replacement asset.
A replacement asset roll-over is available on the conversion of a Crown lease to a freehold title.
The roll-over is automatic and any capital gain or capital loss made from the original asset is disregarded.
Where the original Crown lease was acquired before 20 September 1985, the date of acquisition of the replacement asset (freehold) is taken to be the date that the original Crown lease was acquired.
In your case, you acquired the crown lease before 20 September 1985. The crown lease was converted into a freehold. Therefore, in accordance with the replacement asset roll-over, you are taken to have acquired the freehold on the date that the crown lease was originally acquired before 20 September 1985.
Therefore the land is a pre CGT asset and is not subject to capital gains tax.