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Edited version of your written advice
Authorisation Number: 1051513102869
Date of advice: 3 May 2019
Ruling
Subject: CGT - lease surrender payment
Question
Shall the receipt of the compensation payment relating to lease surrender be treated as capital receipt?
Answer
Yes, the undissected lump sum represents a compensation received for the profit-yielding structure of your business which is capital in nature. It therefore falls under the capital gain tax provisions in Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997) and is not assessable under either sections 6-5 or 6-10 of the ITAA 1997.
This ruling applies for the following period:
Year ending 30 June 2019
The scheme commences on:
1 July 2018
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 are carrying on a business situated on property A.
You don’t own property A and have a lease agreement in place which commenced after 19 September 1985.
Early this year, property A has been sold to a third party and the previous owner (the owner) has agreed to relocate you to new premises within a specific period of time stated in the Heads of Agreement.
In the event that the owner fails to relocate you within the time stated in the Agreement, the owner is obliged to pay you compensation plus Goods and Services Taxes (GST) to surrender the lease. You must provide the owner with a tax invoice for the compensation payment.
In 20XX, a tax invoice was issued to the owner for the full compensation payment as the owner has failed to relocate you; which resulted in you surrendering the lease and waive any claims that you may have against the owner or the new owner of the property under the Deed Relating to Redevelopment and Lease of the Premises.
Your business activities have ceased as a result of the incident.
You provided a copy of the following documents:
● the Surrender of Lease deed
● the Lease agreement
● the tax invoice
● the Heads of Agreement
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 6-10
Income Tax Assessment Act 1997 section 10-5
Income Tax Assessment Act 1997 section 102-5
Income Tax Assessment Act 1997 section 104-10