Private ruling: Mining Compensation
Published: May 2014
Ruling period: Income year ended 30 June 2014 | Income year ended 30 June 2015 | Income year ended 30 June 2016 | Income year ended 30 June 2017 | Income year ended 30 June 2018
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the compensation payments under the proposed Conduct and Compensation Agreement "the Agreement" be assessable as income or a capital gain? | A1: No | Q2: Will the compensation payments under the Agreement reduce the cost base of the relevant property for any future capital gain? | A2: Yes

Relevant facts and circumstances: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: • The application for private ruling received late May 20XX • The Conduct and Compensation Agreement "the Agreement" You are the owner of a property which you use in your primary production business. You have entered into a compensation agreement under the Petroleum and Gas (Production and Safety) Act 2004 with a company to compensate you for a mining activities occurring on your property. The contract details the Agreed Authorised Activities relevant to the damages caused. Clause x of the Agreement in conjunction with section 532 and 532 of the Petroleum and Gas (Production and Safety) Act 2004 provides that you have been compensated for the following heads of damage: • deprivation of possession of its surface; • diminution of its value; • severance of any part of the land from other parts of the land; • any cost, damage or loss arising from the carrying out of activities under the petroleum authority on the land.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Subsection 110-55(6)

Reasons for decision: Summary: Taxation Ruling TR 95/35 provides the Commissioner's view on the taxation implications of compensation receipts. Accordingly, to determine the tax treatment of a compensation payment a "look through" approach is adopted to identify the relevant asset to which the compensation relates. Having regard to your full circumstances, it is accepted that you have been compensated primarily for the reduction in value to an underlying asset, being the property. Consequently the compensation payments will not be assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) as the payments relate to a capital asset. In this instance, where there is no disposal of the underlying asset the receipts will instead amount to a reduction of the cost base of the relevant asset under section 110-55(6) of the ITAA 1997 as a recoupment of the purchase price.