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Edited version of private advice
Authorisation Number: 1052191528231
Date of advice: 13 November 2023
Ruling
Subject: Capital gains tax
Question
Will the granting of a right by you give rise to a capital gain under capital gains tax (CGT) event D1?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2023
The scheme commenced on:
1 July 2022
Relevant facts and circumstances
You have entered into a scheme with Company Z.
This scheme was arranged in co-ordination with another entity.
You are not a primary producer.
The property was purchased from the other entity.
The property is under a covenant and cannot generally be used for any business.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-35
Income Tax Assessment Act 1997 section 108-5
Reasons for decision
Subsection 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines a CGT asset as:
a) any kind of property; or
b) a legal or equitable right that is not property.
It is commonly understood that a right in relation to land is a right conferred, to the legal, commercial, or other benefit, to exploit the associated assets.
It is a legal right and falls within the definition of CGT asset in subsection 108-5(1) of the ITAA 1997.
Capital gain for CGT event D1
CGT event D1 happens if a taxpayer creates a contractual right or other legal or equitable right in another entity (subsection 104-35(1) of the ITAA 1997).
A capital gain will arise on CGT event D1 happening if the capital proceeds from creating the right are more than the incidental costs the taxpayer incurred that relate to the event. The taxpayer can make a capital loss if those capital proceeds are less (subsection 104-35(3) of the ITAA 1997).
Generally, the capital proceeds from a CGT event are the total of:
• the money you have received, or are entitled to receive, in respect of the event happening; and
• the market value of any other property you have received, or are entitled to receive, in respect of the event happening
Therefore, the $XXX you received from Company Z is a capital gain under CGT event D1, less any incidental costs you have incurred in relation to the CGT event.