Edited version of private advice

Authorisation Number: 1052370430727

Date of advice: 12 March 2025

Ruling

Subject: CGT - crown lease

Question

Did person A and person B continuously own the rights under the rolling term lease in respect of the property known as Property Z for the 15-year period ending just before their disposal, for the purposes of paragraph 152-105(b) of the Income Tax Assessment Act 1997?

Answer

No.

This ruling applies for the following periods:

Income year ending 30 June 20YY

Income year ending 30 June 20YY

Income year ending 30 June 20YY

Relevant facts and circumstances

Person A and person B are partners in a partnership with the Trust. The Trust is a discretionary trust, and person A and person B are the directors and shareholders of the Trustee.

The partnership commenced in 20YY. Prior to this date person A and person B traded as a partnership. Person A and person B commenced their business in 19YY.

Peson A and person B have carried on their business on multiple cattle properties in [State], including Property Z.

As joint tenants, person A and person B entered into a contract for the acquisition of a leasehold interest over Property Z on XX XX 20YY and, as registered lessees on the title, have carried on their business on Property Z since XX XX 20YY (contract settlement date).

The lease over Property Z is a 'rolling term lease' (as per the definition of that term under section 164 of the Land Act 1994) granted to them by the State of X for pastoral purposes, and a 'Crown lease' (as per the definition of that term under section 124-580 of the Income Tax Assessment Act 1997). The legal description for Property Z is Lot X on XX no XXXX (Title reference XXXXXXXX) and includes a tenure reference PDH[1] X/XXXX.

Under the Land Act 1994, a lessee may apply for an extension of a rolling term lease anytime in the last 20 years of the term of lease. The rolling term provisions, including conditions, purpose and rental, continue unchanged for the period of the extension, and the lease is subject to the same registered interests noted on the land registry. Where a rolling term lease is extended, the lease continues in force for the term of the extension, and the term of the extension commences immediately after the lease would otherwise have expired[2].

The term of the lease over Property Z entered into by person A and person B on XX XX 20YY expired on 30 June 20YY and was extended with immediate effect on expiry of the previous term, from 1 July 20YY to 30 June 20YY.

In addition to the sale of one property in 20YY, person A and person B have planned further transfers as part of their retirement plans, including the transfer of their leasehold interest over Property Z to their child, person C.

Person A and person B are in their XX's. Once the transfers are complete person A and person B plan to retire permanently. The expected time frame by which the transfers are planned to occur is 4 to 7 years.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 paragraph 104-25(1)(c)

Income Tax Assessment Act 1997 subsection 108-5(1)

Income Tax Assessment Act 1997 Subdivision 124-J

Income Tax Assessment Act 1997 section 124-580

Income Tax Assessment Act 1997 Section 152-105

Income Tax Assessment Act 1997 paragraph 152-105(b)

Land Act 1994 section 164

Land Act 1994 section 164F

Reasons for decision

All subsequent legislative references are to the Income Tax Assessment Act 1997.

Summary

For the purposes of paragraph 152-105(b), person A and person B will not have continuously owned the leasehold interest over Property Z for the 15-year period ending just before they entered into a contract for its disposal to their child, person C.

Detailed reasoning

Section 152-105 states that you (an individual) can disregard a capital gain arising from a CGT event if all of the following conditions are satisfied:

(a) the basic conditions in Subdivision 152-A are satisfied for the gain;

(b) you continuously owned the CGT asset for the 15-year period ending just before the CGT event;

(c) if the CGT asset is a share in a company or an interest in a trust - the company or trust had a significant individual for a total of at least 15 years (even if the 15 years was not continuous and it was not always the same significant individual) during which you owned the CGT asset;

(d) either:

(i) you are 55 or over at the time of the CGT event and the event happens in connection with your retirement; or

(ii) you are permanently incapacitated at the time of the CGT event.

The phrase 'continuously owned' and the term 'owned' are not defined in the Income Tax Assessment Act and take on their ordinary meaning. To own is defined as 'to have or hold as one's own; possess'[3].

Subsection 108-5(1) states that a CGT asset is any kind of property, or a legal or equitable right that is not property.

The leasehold interest of person A and person B over Property Z is an intangible CGT asset, and the transfer of the leasehold interest by person A and person B to person C will be a disposal of a CGT asset which gives rise to a CGT event A1 under section 104-10.

For the purposes of paragraph 152-105(b), person A and person B will have continuously owned the leasehold interest over Property Z for the requisite 15-year period if their ownership of that interest began from the time they first acquired an interest as leaseholders in the rolling term lease over Property Z (on XX XX 20YY).

Alternatively, perosn A and person B will not have continuously owned the leasehold interest over Property Z for the requisite 15-year period if their ownership of that interest began from the time the rolling term lease over Property Z was most recently extended (on 1 July 20YY).

CGT event C2

CGT event C2 happens if your ownership of an intangible CGT asset ends by the asset expiring (paragraph 104-25(1)(c)). The word 'expiring' in paragraph 104-25(1)(c) merely refers to an expiry by an effluxion or lapse of time, for example, when the specified time period of a lease expires[4].

Person A and person B's interest in the rolling term lease over Property Z was due to, and did, expire on 30 June 20YY. The leasehold interest they acquired ownership of pursuant to the contract entered into on XX XX 20YY therefore ended on 30 June 20YY and CGT event C2 happened in respect of that CGT asset at that time.

Replacement asset roll-over - Crown lease

Subdivision 124-J provides an automatic replacement-asset roll-over to a holder of rights under a Crown lease over land (the original right) when the original right expires, and the holder is granted a new Crown lease over the same land (the new right) by way of an extension of the term of the original right.

Inherent in this scenario (as with any replacement-asset roll-over) is the ending of your ownership in the original asset and your acquisition of a replacement asset as part of the same transaction or circumstances.

Person A and person B's original asset ended upon expiration of its term (as concluded above). It is therefore not possible for that same asset to be disposed of to person C.

The rolling term lease over Property Z for an extended term (with effect from 1 July 20YY) constitutes a different (replacement) asset, acquired by person A and person B at the start of the extension.

Therefore, for the purposes of paragraph 152-105(b), person A and person B will not have continuously owned the rolling term lease over Property Z for the requisite 15-year period just before they entered into a contract for its transfer to person C.

[1] PDH refers to Pastoral Development Holding.

[2] Section 164F of the Land Act 1994.

[3] Macquarie Online dictionary.

[4] See paragraph 2 of Taxation Determination TD 1999/76 Income tax: capital gains: does the word 'expiring' in paragraph 104-25(1)(c) and the expression 'expiry of a CGT asset' in subparagraph 116-30(3)(a)(i) of the Income Tax Assessment Act 1997 include voluntary terminations?