Private ruling: Capital gains tax - easement
Published: November 2012
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 01 July 2010

Ruling: Q1: Does the additional payment form part of the consideration that you received for the easement? | A1: Yes | Q2: Are you required to include the additional payment in your 20XX-XX income tax return? | A2: Yes

Relevant facts and circumstances: You own a property. You signed a deed of option to create an easement on your property. This option was executed in 20XX and at this time you received the consideration payable under the easement agreement. Due to delay in construction of the easement you received an additional payment in 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-35

Reasons for decision: Summary: Section 104-35 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a CGT event D1 happens when you create a contractual right or other legal or equitable right in another entity. The time of the event is when you enter into the contract or create the right. An easement is a right over someone else's land or property. If an easement is created as a result of the exercise of an option then this will trigger a CGT event D1. In your case, you signed a deed of option to create an easement on your property. This option was executed in 20XX and at this time you received the consideration payable under the easement agreement. Due to delays in the construction of the easement you received an additional payment in 20XX. This was paid as per the agreement executed in 20XX. The relevant clause in the agreement provides that if the compensation amount is in excess of the easement purchase price then the easement purchase price will be increased to the compensation amount. As such, although the additional payment was received in the 20XX-XX financial year, it will still form part of the consideration received for the easement. Accordingly, as the option for the easement was executed in 20XX, you will have to include the additional payment in your 20XX-XX income tax return.

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