Private ruling: Capital gains tax - disposal of land - compulsory acquisition - roll-over
Published: August 2011
Ruling period: Income year ending 30 June 2010
Date scheme commenced: 1 July 2009

Ruling: Q1: Will you be eligible to choose a roll-over under subsection 124-70(1) of the Income Tax Assessment Act 1997 in relation to the disposal of your vacant block of land? | A1: No.

Relevant facts and circumstances: You purchased a vacant block of land after 20 September 1985. Your intention was to construct your principle residence on the block of land. You engaged the services of an architect to draw up plans for your residence, met with surveyors and builders, and sought quotes on building and construction costs. You were approached by real estate agents making enquiries as to whether you were interested in disposing of the vacant block of land as it was integral to the disposal of the property from which your block was originally part of. At the time of the negotiations, you were under the assumption that a local council by-law may have been in place to compulsorily acquire your vacant block of land had the negotiations over the disposal of the land not been resolved. You disposed of the block of land and made a capital gain. After you disposed of the vacant block of land you purchased a property in the same area which is currently being used as your principle place of residence.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20, | Income Tax Assessment Act 1997 Section 104-10, | Income Tax Assessment Act 1997 Subdivision124B | Income Tax Assessment Act 1997 Subsection124-70(1)

Reasons for decision: Summary: A capital gain or a capital loss is made as result of a capital gains tax (CGT) event happening to a CGT asset. The most common event is CGT event A1 which occurs when you dispose of your ownership interest in a CGT asset to someone else. In certain situations, the capital gain made when a CGT event happens can be deferred. One such example of this is the replacement asset roll-over. Subsection 124-70(1) of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the circumstances in which, and conditions under which, roll-over relief will be available under Subdivision 124B of the ITAA 1997. The section provides roll-over where a specified event happens to an asset and where the owner of the asset receives either or both of money or another capital gains tax (CGT) asset (with certain exceptions) as compensation. The applicable events for the roll-over to be available under subsection 124-70(1) of the ITAA 1997 are where: 1) the asset is compulsorily acquired by: a) an Australian government agency, or b) an entity, other than an Australian government agency or a foreign government agency, under a power of compulsory acquisition. This power must be conferred by an Australian law (other than the Corporations Act 2001 Ch 6A dealing with compulsory acquisitions and buy-outs) or a foreign law (other than a foreign law corresponding to the Corporations Act 2001 Ch 6A) 2) the asset is wholly or partially lost or destroyed 3) the asset is disposed of to an entity (other than a foreign government agency) where the disposal takes place after a notice was served by the entity inviting the taxpayer to negotiate with a view to the entity acquiring the asset by agreement but, on the basis that, if the negotiations were unsuccessful, the asset would be compulsorily acquired by the entity under the relevant law 4) if the asset is land over which a mining lease was compulsorily granted - the lease significantly affected the taxpayer's use of the land, the lease was in force just before the disposal and the entity to which the taxpayer disposed of the land was the lessee under the lease (but was not a foreign government agency) 5) if the asset is land over which a mining lease would have been compulsorily granted if the taxpayer had not disposed of it - that lease would have significantly affected the taxpayer's use of the land and the entity to which the taxpayer disposes of the land would have been the lessee under the lease (but not a foreign government agency); or 6) if the asset is a lease granted to the taxpayer by an Australian government agency under an Australian law - the lease expires and is not renewed. The roll-over becomes available only if one of the events listed above occurs. | Detailed Reasoning - Application to your case: In your case, you were under the assumption at the time of the negotiations for the disposal of your vacant block of land that a local council bylaw may have been in place to compulsorily acquire the block if the negotiations had not been resolved. This assumption was later proven to be incorrect, and there were no provisions for your block to be compulsorily acquired if negotiations for its sale were not successful. While we acknowledge that your intention when you purchased the block of land was to build your principle residence, and you disposed of the block under the belief a compulsory acquisition of the block may have eventuated, these factors do not enable you to meet any of the conditions listed above for the roll-over to apply. Therefore, it is the Commissioner's view that you made the decision to dispose of your vacant block of land, and were not required to dispose of it due to a compulsory acquisition. As the disposal of your vacant block of land does not meet any of the events listed above for the roll-over to apply, any capital gain that you have made on the disposal of the block must be included in your income tax return in the income year in which the block was disposed of.

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