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Edited version of private advice
Authorisation Number: 1012645692144
Ruling
Subject: CGT - Compulsory acquisition
Questions:
1. Will a capital gain or capital loss be made upon disposal of a portion of your land to a state government department?
Answer: Yes
2. Will CGT event A1 occur when you dispose on a portion of your land to a state government department?
Answer: Yes
This ruling applies for the following periods:
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commences on:
1 July 2013
Relevant facts and circumstances
You own a large parcel of land purchased post CGT.
The main roads department of your state will take a strip of your land for a road reservation for a main road
The balance of the land will then be in two parcels, either side of the highway reserve.
You will not dispose of the balance of the land.
The acquisition of the land may be by negotiated settlement or compulsory acquisition.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 40 ,
Income Tax Assessment Act 1997 Subsection 104-10(3),
Income Tax Assessment Act 1997 Section 108-5,
Income Tax Assessment Act 1997 Section 124-70,
Income Tax Assessment Act 1997 Section 124-75,
Income Tax Assessment Act 1997 Subsection 124-85(2) and
Income Tax Assessment Act 1997 Division 328.
Reasons for decision
A capital gain or capital loss is made when you dispose of a capital gains tax (CGT) asset. A CGT asset is any kind of property, or a legal or equitable right that is not property, section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997).
You dispose of an asset when a change of ownership occurs from you to another entity. This triggers a CGT event A1. The time of the event is when you enter into the contract for the disposal (subsection 104-10(3) of the ITAA 1997).
In your case, when you dispose of a portion of your land to the main roads department, CGT event A1 will occur.
This will be the case whether you are compensated for the land via a negotiated settlement or compulsory acquisition. You are still disposing of a portion of your CGT asset.