Private ruling: Capital gains tax events
Published: March 2013
Ruling period: Year ending 30 June 2012
Date scheme commenced: On or after 1 January 2012

Ruling: Q1: Is the transfer of your liquor licence and hotel lease a capital gain tax (CGT) event A1 under subsection 104-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes | Q2: Whether the disposal of the liquor licence and hotel lease occurred at the time the notice was issued to you on as per subsection 104-10(3) of the ITAA 1997? | A2: Yes | Q3: Is the cancellation of your gaming licence a CGT event C2 as defined in subsection 104-25(1) of the ITAA 1997? | A3: Yes | Q4: Whether the disposal of the gaming licence occur at the time the notice was issued to you as per subsection 104-25(2) of the ITAA 1997? | A4: Yes

Relevant facts and circumstances: The hotel is established in a capital city. The hotel is licensed for the supply of liquor under the liquor licence and for the operation of gaming machines under the gaming licence. A company was previously the owner of the property situated in the capital city. You entered into a lease with the company in respect to the property. You operated the hotel. The company entered into an arrangement with you. In the arrangement, the company agreed to grant you certain rental concessions under the hotel lease. The arrangement also documented the grant of options that empowered the company by giving notices to you to compel you to assign or transfer the rights and assets of the hotel Furthermore, the arrangement allowed the holder of the options to exercise its rights under a clause to issue a notice that requires you to transfer the hotel lease to its nominee. A clause then requires you to transfer the liquor and gaming licence as soon as practicable after the issue of the notice. An entity entered into a contract with the company to purchase the property. The entity issued a notice to you obliging you to transfer the assets to its nominee. You agreed to execute all necessary documents as required by the notice to facilitate the transfer of the hotel lease, the liquor and gaming licence to the nominee. The hotel lease was transferred to the nominee. Liquor and gaming licence issued to the nominee for the hotel. Settlement occurred after you received the notice.

Relevant legislative provisions: subsection 104-10(1) of the ITAA 1997 | subsection 104-10(2) of the ITAA 1997 | subsection 108-5(1) of the ITAA 1997 | subsection 104-10(3) of the ITAA 1997 | subsection 104-25(1) of the ITAA 1997 | subsection 104-25(2) of the ITAA 1997

Reasons for decision: Summary: The transfer of your liquor licence and hotel lease to another entity is a CGT event A1 under subsection 104-10(2) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Subsection 104-10(1) of the ITAA 1997 states that a CGT event A1 happens if you dispose of a CGT asset. Subsection 104-10(2) of the ITAA 1997 states that you dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. A CGT asset as defined in subsection 108-5(1) of the ITAA 1997 is any kind of property or a legal or equitable right that is not property. In your case, you were required to transfer the hotel lease and the liquor licence to another entity as a result of receiving a notice. The transfer of the hotel lease and liquor license occurred at a later date. As you were required to dispose of your CGT assets by transferring the liquor licence and hotel lease to another entity, you meet the requirements of subsection 104-10(1) of the ITAA 1997 for a CGT event A1 to have occurred. | Summary: The disposal of the liquor licence and hotel lease occurred at the time the notice was issued to you as per subsection 104-10(3) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: If you have a CGT event A1, subsection 104-10(3) of the ITAA 1997 states that the time of the event is when you enter into the contract for the disposal or if there is no contract, when the change in ownership occurs. In your case, you received a notice to transfer the hotel lease and liquor licence to another entity. Based on this information, the timing of this event would be the date you received the notice. | Summary: The cancellation of your gaming licence is a CGT event C2 as defined in subsection 104-25(1) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: A CGT event C2 happens as defined in subsection 104-25(1) of the ITAA 1997 if your ownership of an intangible CGT asset ends by the asset: · being redeemed or cancelled, · being released, discharged or satisfied, · expiring, · being abandoned, surrendered or forfeited, · if the asset is an option - being exercised, or · if the asset is a convertible interest - being converted Section 77 of the Gaming Machine Act 1991 does not allow for a gaming licence to be transferred to another entity. Subsection 96(1) states that if a liquor licence is cancelled, transferred or surrendered, any associated gaming licence is cancelled. In your case, you were required to cancel your gaming licence as you were obligated to transfer the hotel lease and gaming licence to another entity under the notice. As you were required to cancel your liquor licence, your ownership to this asset ended. As your licence was cancelled, you meet the requirements of subsection 104-25(1) of the ITAA 1997 for a CGT event C2 to have occurred. | Summary: The disposal of the gaming licence occurred at the time the notice was issued to you as per subsection 104-25(2) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: If you have a CGT event C2, subsection 104-25(2) of the ITAA 1997 states that the time of the event is when you enter into the contract that results in the asset ending or if there is no contract, when the asset ends. In your case, you received a notice in which you were required to transfer the hotel lease and liquor licence to another entity. You also had to cancel your gaming licence in order for the new entity to acquire the gaming licence under the Gaming Machine Act 1991 . Based on this information, the timing of this event is the date you received the notice.