Edited version of private advice

Authorisation Number: 1051603527898

Date of advice: 31 October 2019

Ruling

Subject: The sale of rights to a recreational licence on crown land.

Question

Is the sale of a 50% interest in the asset which interest was acquired with value of less than $10,000 post-CGT, "a personal use asset" of its owner at the time of sale?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2019

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.

History of the licence

The first licence was granted to the senior family member. The licence granted permissive occupancy of the site of the structure on crown land. The licence was to be used for the purpose on which it was granted, the permissive occupancy is entirely at the will of the Minister, it may be withdrawn at any time on one months' notice and does not confer any right to transfer or sublet. Any breach of conditions could see the permissive occupancy withdrawn. In the event the permissive occupancy be revoked the Minister will not be liable to pay compensation for any improvements effected on the site.

The senior family member passed and their rights to the licence were transferred to their wife.

The site became rateable property in 1985.

A few years later after passing of the senior family member, the spouse transferred their interest in the licence to their children.

You have provided a variation notice of the site after it was transferred to the children.

The sight has always we been used for personal leisure and never used to derive income, there has been no improvements conducted on the sight.

One of the owners of the licence passed away. You have provided the current day rates notice for the sight.

Licence conditions provide:

·        The rights conferred by the licence are non-exclusive, do not create or confer upon the licensee any tenancy or any estate or interest in or over the licenced site or any part of it, and do not compromise or include any rights other than those granted or to which the licensee is otherwise entitled by law.

·        The licence fee is punctually paid or caused to be paid the licence fee to the Licensor.

·        Rates and taxes for the licenced site are paid punctually.

·        Indemnify the Crown in respect of any claim or liability for property damage and/ or injury or death of any person which arises directly or indirectly out of negligence.

·        There must be a public liability insurance that must be held over the site.

·        On expiry or prior to determination of the licence they return the licences site in good order and condition accordance with the licences obligations.

·        Provide the Licensor prompt notice in writing of any accident or defect on the licensed site.

Licence Schedule provides:

·        Licence Number

·        Licensor details

·        Licensee details

·        Commencement date

·        Term of contract.

You have provided a copy of the sales contract.

The sale was finalised on the 2019 financial year.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 108-20(2)

Income Tax Assessment Act 1997 subsection 108-20(3)

Income Tax Assessment Act 1997 section 118-10

Income Tax Assessment Act 1997 subsection 118-10(3)

Income Tax Assessment Act 1997 subsection 118-130(3)

Reasons for decision

You make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985. CGT events are those transactions that occur to a CGT asset that result in you either making a capital gain or capital loss.

You make a capital gain if your capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if you receive more for an asset than you paid for it. You make a capital loss if your reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset, for example, if you receive less for an asset than you paid for it.

Personal use assets

Subsection 108-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997) defines a personal use asset as:

'a CGT asset (except a collectable) that is used or kept mainly for your personal use or enjoyment'.

The following items are also deemed to be personal use assets:

·        an option or right to acquire a personal use asset

·        a debt arising from a CGT event in which the CGT asset was a personal use asset

·        a debt arising other than:

a)     in the course of gaining or producing...assessable income; or

b)     from carrying......on a business.

Examples of personal use assets include: clothing, yachts, cameras, televisions and furniture.

Some assets are specifically excluded from the definition of a personal use asset by subsection 108-20(3) of the ITAA 1997. Examples of such assets can include land, a stratum unit, buildings, leases, units in a unit trust, licences and contractual rights these are viewed as a separate CGT asset due to subdivision 108-D of the ITAA 1997.

Section 118-10(3) of the ITAA 1997 states a capital gain you make from a *personal use asset, or part of the asset, is disregarded if the first element of the asset's cost base, or the first element of it's *cost if it a depreciating asset, is $10,000 or less.

Interest in land

Subsection 118-130(1) of the ITAA 1997 provides you have ownership interest in land or a dwelling if:

(a)   for land - you have a legal or equitable interest in it or a right to occupy it; or

(b)   for a dwelling that is not a flat or home unit - you have legal or equitable interest in the land on which is erected, or a licence or right to occupy it.

Crown land is land owned by the government, responsibility for the issue of general Crown land licences resides with an entity acting on behalf of the Minister. A licence does not convey any exclusive rights to the licensee. A licence provides a right to carry out the activity specified in the licence. A lease differs from a licence in that a licence gives permission to the holder to carry out a permitted activity without the right of exclusive occupation. A licence may be cancelled if conditions are not met.

The first licence granted to the senior family member. The grant of the licence was for permissive occupancy over the crown land site which included the bathing box. The family member was to pay annual fee to the council to hold licence. There was no exchange of money for the structure affixed on the land the senior family member did not purchase the structure or hold legal title of the crown land which the structure was upon.

The crown folio statement for sight is described as Crown allotment, the reservation is classified as permanent recreational convenience or amusement of the people. Individuals who have the right of occupancy of the crown allotment do not hold title of the allotment of the structure. The classification of the allotment further clarifies the site is for recreational or amusement of the people. One person cannot own the structure or sell the structure as an individual asset, as it is affixed on crown land the council has management of.

As stated in the sales contract, if the new licensees are not approved by the council the purchasers must refund all monies that have been paid in relation to rights to the licence. If the sale could be identified numerous assets the council would not hold ultimate control of the crown land upon the structure is affixed. This further suggests you did not hold an ownership interest in the structure but merely a right to occupy the crown land in the form of a licence that is renewed periodically and subject to the policy and procedures stated above, to which the bathing box is affixed.

Section 108-20(3) of the ITAA 1997, excludes certain assets from meeting the criteria of a personal use asset for CGT purposes. This includes licences and contractual rights.

Additionally, it is arguable that you held an interest in land as you held a right to occupy the site under the licence. It noted in the sale contract, that 'the Vendors are entitled to exclusively occupy and use of the structure. Therefore, as you held an interest in land, any capital gain or loss cannot be disregarded a personal use asset as subsection 108-20(3) excludes land from being a personal use asset.

In reference to your case, the structure is affixed to land, and would be identified as a building or structure upon the land. Therefore, the structure will not meet the definition of a personal use asset and will not be exempt as per section 118-10 of the ITAA1997.

The sale of the licence is clearly identified in section 108-20(3) of the ITAA 1997 and does not meet the criteria of a personal use asset. Therefore, the sale of the licence will not be exempt from CGT as per section 118-10 of the ITAA 1997.