Private ruling: Capital gains tax - compensation - assessability
Date of advice: 21 January 2020
Published: March 2020
Ruling period: Income year ending 30 June 2017
Date scheme commenced: 1 July 2016.

Ruling: Q1: Is the portion of the total compensation payment relating to the Trees a partial recoupment of the cost base of the Property? | A1: Yes. Based on the information provided, the amount of the total compensation that is attributable to the Trees was received for the permanent damage to, or reduction in value of the Trees. In accordance with Taxation Ruling TR 95/35 the compensation is considered a recoupment of part or all the acquisition costs of the underlying asset, being the Property. The calculations prepared by the assessor for the Government program after the bushfire was used in relation to the calculation of the compensation amount for the Trees as a result of the bushfire, which is considered to be an opportunity cost. The Trees cannot be a separate asset from the Property as they were not registered in the Government program until after the bushfires had occurred. Accordingly, the cost base of the Property should be reduced by the portion of the total compensation amount that is attributable to the Trees.

Relevant facts and circumstances: You acquired the property ( the Property ) after 20 September 1985 which was affected by bushfires after a number of years after it was purchased. The Property was registered with a Government program a number of years after the bushfires had occurred. An assessor reviewed the Property in relation to the Government program and emailed you his preliminary review of habitat hectare losses associated with fire impact at the Property which outlined the following: · the quantity and value of the trees ( the Trees ) involved in the Government program had been reduced as a result of damage and loss caused by the fires · the Trees were registered as a confirmed asset with the Government program; and · a calculation of the financial losses associated with the bushfires was provided in relation to the loss and damage to the Trees. You received a letter containing a Provisional Notice of Assessment in relation to the assessment of your economic loss and property damage (ELPD) claim a number of years after the fire occurred which provided a breakdown of the amounts included the total summary amount of assessed losses of $XXX,XXX, which outlined that the amount attributable to the Trees was $XXX,XXX. During the following year you were sent a cheque for $XXX,XXX as total compensation payment for your ELPD losses. The Property was not your main residence. The Property was sold a number of months after you had received the compensation payment.

Relevant legislative provisions: Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Part 3-3