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Edited version of private advice
Authorisation Number: 1052067960649
Date of advice: 13 December 2022
Ruling
Subject: CGT - compulsory acquisition
Question 1
Did a capital gains tax (CGT) event happen when you received the disadvantage compensation payment and will any capital gain or capital loss made be disregarded under subparagraph 118-37(1)(a)(ii) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
A capital gain or capital loss you make from a CGT event relating to the disadvantage compensation amount paid by the acquiring state government agency to you under the state's land acquisition Act in respect of the non-financial disadvantage resulting from the necessity for you to relocate your principal place of residence as a result of the acquisition of your land, is disregarded under subparagraph 118-37(1)(a)(ii) of the ITAA 1997, as it relates directly to compensation you receive for any "wrong, injury or illness you or your relative suffers personally".
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You and your spouse purchased a property in 20XX.
You treated the property as you main residence for your whole entire ownership period and the property was never used to produce assessable income.
The total land area of the property was XX hectares.
Your property was identified as being needed for the delivery of a government infrastructure project and subject to the state or territory's land acquisition legislation.
You entered into an agreement with the relevant state government entity who compulsory acquired the property for public use and you received monetary compensation.
The compensation you received was made up of three parts, with one of the payments representing non-financial disadvantage resulting from the necessity for you to relocate your principal place of residence as a result of the acquisition of your land.
The payment is a one-off capital lump sum, calculated as a proportion of a prescribed sum under statue where certain circumstances are taken into account, including the inconvenience you personally suffered because of your removal from the land.
Relevant legislative provisions
Income Tax Assessment Act section 104-25
Income Tax Assessment Act subparagraph 108-5(1)(b)
Income Tax Assessment Act subparagraph 118-37(1)(a)(ii)