Private ruling: Assessable income - body corporate - resumption of land
Published: June 2012
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the payment received by you in respect of your loss arising from the resumption of common land considered to be assessable income? | A1: Yes. | Q2: Is the compensation received by your body corporate for the resumption of common land assessable under capital gains tax (CGT) provisions? | A2: Yes. | Q3: Is the capital gain or loss made on the resumption of common land owned by your body corporate disregarded? | A3: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are the joint owner of a residential unit. You purchased the unit on or after 20 September 1985, and before 21 September 1999. The unit is strata titled. The majority of the units in your complex participate in a holiday letting business. Your unit is located in X. During the 2011 income year the State of X - Department of Transport and Main Roads resumed an area of land from the common property held by the body corporate of your unit complex. From the period of some weeks during the 2011 income year the holiday letting business that your unit is a part of closed so that work in relation to the resumed land could be completed in an efficient and timely manner, minimising disruption to the complex. The Department of Transport and Main Roads advised you by letter at some time during the 2012 income year that compensation for the loss of common property was being dealt with by your body corporate. They also advised in the same letter that they had engaged a property valuer to assess any loss in relation to your individual lot. The valuer advised that the loss in relation to the value of your unit would be offset by the enhancement gained by the work that was completed in the area by the Department of Transport and Main Roads. The Department of Transport and Main Roads also engaged an accountant to assess the effect on income of the individual unit owners in your complex. Their accountant took into account the effect on income of the closure of the holiday letting business. Based on this information the State of X (by way of the Department of Transport and Main Roads) offered you a commensurate sum as settlement for any claims arising from the resumption of common land. The Department of transport and Main Roads sent a letter to you dated the at some time during the 2012 income year in which they enclosed a cheque for the amount offered earlier as settlement of your claims in relation to any loss of income arising out of the resumption of land. At a later time during the 2012 income year your body corporate met to vote on the compensation offered by the State of X (again by way of the Department of Transport and Main Roads) for the resumption of common land. On settlement of the compensation claims it is the intention of the body corporate to distribute the proceeds from the sale of the common land amongst the unit holders in proportion to their respective interests of the lot entitlements. The resolution passed without dissent.

Relevant legislative provisions: Building Units and Group Titles Act 1980 (X) Subsection 20(1) Income Tax Assessment Act 1997 Section 104-10 Income Tax Assessment Act 1997 Subsection 104-10(6) Income Tax Assessment Act 1997 Subsection 109-5(1) Income Tax Assessment Act 1997 Section 112-30 Income Tax Assessment Act 1997 Section 114-1 Income Tax Assessment Act 1997 Section 115-25 Income Tax Assessment Act 1997 Section 116-40

Reasons for decision: Detailed Reasoning - Question 1:: While compensation for the loss or destruction of an asset may be capital in character, compensation for the temporary disablement of a revenue producing asset will be income in the hands of the recipient. In your case you have received a payment from the State of X in consideration for the effect of the resumption of part of your common land on your income. This payment took into account the closure of the holiday letting business, of which your unit is a part. It would then be considered that this payment is replacement for income lost, and would retain the same character as the income it replaces. The compensation payment would then be considered to be assessable ordinary income, and should be included in your income tax return as part of your rental receipts in the relevant income year. The relevant income year would be when the payment was received, being the income year ending 30 June 2012. | Detailed Reasoning - Question 2:: A strata scheme is a legally recognised arrangement whereby a building and the land upon which it is erected is subdivided into lots, or lots and common property. The lots (commonly called units) have a separate title, which can generally be bought and sold without restriction. Common property is that part of a strata plan not comprised of any proprietor's lot and includes the stairways, lifts, passages, common gardening areas, and any other fixtures intended for common use. The ownership of common property varies under different State Acts and Territorial Ordinances. In X ownership of common property is vested in the proprietors as tenants in common in proportions equal to their lot entitlements. If a disposal of CGT asset held under a strata title arrangement occurs in X, as tenants in common each lot holder would make a capital gain or a capital loss in line with their interest in the asset. Any net capital gain or capital loss would then be included in the assessable income of each lot holder. If the CGT asset in question is acquired under a power of compulsory acquisition conferred by Australian law it is considered that this constitutes a disposal of a CGT asset. The timing of the event is the earlier of: · when the taxpayer received compensation from the entity · when the entity became the asset's owner · when the entity entered it under that power · when the entity took possession under that power In your case: · you are the owner of a strata titled lot. · the lot is located in X and is subject to X property law. · ownership of any common land that is strata titled is then vested in you as the proprietor as a tenant in common under X property law. · land is a CGT asset, and a disposal of land is a CGT event that may give rise to a capital gain or a capital loss · on the disposal of common land any capital gain or capital loss will be calculated according to your proportional interest in the property · the resumption of the common land occurred during the 2011 income year. Any net capital gain or loss made by you on the sale of the common land will be included in your assessable income. As you have owned the lot for greater than 12 months and you are an individual you may use the discount method to calculate your capital gain. Alternatively, as you acquired the lot prior to 21 September 1999 you could use the indexation method to calculate your capital gain. As the resumption of common land took place on during the 2011 income year, your capital gain or loss resulting from this event should be included in your tax return for income year ended 30 June 2011, unless one of the other timing events took place in an earlier income year. However, you are not required to include your capital gain or loss in your return until the funds have been settled on your body corporate. At this time you would then need to amend your tax return for the income year ended 30 June 2011 to include your capital gain or capital loss. You would need to do this within a reasonable amount of time of the settlement occurring. You will also need to include the amount in your assessable income if the body corporate has not yet distributed the proceeds of the sale of the common land. | Detailed Reasoning - Question 3: The capital gain or capital loss is not disregarded as the land was acquired by you after the 20 September 1985, and was not sold with a dwelling that was your main residence.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.