Private ruling: CGT - compulsory acquisition
Published: September 2014
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Q1: 1. Will the date the state government department entered the property be considered the CGT event date of the compulsory acquisition? | A2: Yes

Relevant facts and circumstances: You were approached by a state government department (the department) in the 2009/10 financial year and verbally advised that your property was going to be acquired to allow the building of a road. The property was your principal residence. No formal letters were issued at this stage. You were unable to locate any government gazette notices of the acquisition. You received a Notice of Intention to Enter Land letter from the department in 2011/12 financial year, stating that they would be entering your property for the purposes of undertaking survey works, geotechnical investigations, and/or other studies that may be required. You proceeded to purchase a new property. The contract for the purchase was signed a few months later. This property would become your new principal residence. To date the matter has not been fully finalised.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 124-70 | Income Tax Assessment Act 1997 section 124-75 | Income Tax Assessment Act 1997 subsection 104-10(6) | Income Tax Assessment Act 1997 subsection 995-1

Reasons for decision: Summary: Under the provisions of subdivision 124-B of the ITAA 1997, an entity may be able to choose to rollover a capital gain that results from a compulsory acquisition of a capital gains tax (CGT) asset they own. One of the circumstances in which a taxpayer can make this choice is if the asset is compulsorily acquired by an Australian government agency (paragraph 124-70(1)(a) of the ITAA 1997). 'Australian government agency' is defined in subsection 995-1(1) of the ITAA 1997 as the Commonwealth, a State or Territory, or an authority of one of them. The time of the event is determined by subsection 104-10(6) of the ITAA 1997. The time of the event will be the earlier of: • when you received compensation from the entity acquiring your asset • when the entity becomes the asset's owner • when the entity entered it under the compulsory acquisition power, or • when the entity took possession under that power. In your case, your land has been compulsorily acquired by a state government agency. The agency entered the property for the purpose of undertaking survey works, geotechnical investigations and/or other studies that were required. Therefore, this is considered to be the time of the CGT event under subsection 104-10(6) of the ITAA 1997. Accordingly, subject to meeting the requirements of section 124-75 of the ITAA 1997, you will be entitled to apply the rollover contained in subdivision 124-B of the ITAA 1997. | Detailed Reasoning - Further requirements of section 124-75 of the ITAA 1997: Depending on whether you receive money as a result of the compulsory acquisition or you receive another asset, there are additional requirements that must be met to apply the rollover under subdivision 124-B of the ITAA 1997. In cases where an entity receives money as a result of the event, the entity must satisfy the requirements of section 124-75 of the ITAA 1997 for the rollover to be available. This means that: • the entity must incur expenditure to acquire another CGT asset • at least some of the expenditure to acquire the new CGT asset must be incurred by the entity no earlier than one year before the event happens or no later than 12 months after the end of the income year in which the event happened. There are two further requirements in subsection 124-75(4) of the ITAA 1997, either of which can be satisfied: • if the original asset was used or installed ready for use in your business, the new asset must be used or installed ready for use in that same business for a reasonable time after it was acquired, or • you use the new asset for the same or similar purpose that the original asset was used for just before the CGT event that gave rise to the rollover. You purchased a replacement asset within the time frame required by section 124-75 of the ITAA 1997. Further, this asset was used for the same or similar purpose that the compulsorily acquired asset was used for. Therefore, as the requirements of subdivision 124-B of the ITAA 1997 have been satisfied, you will be able to rollover the capital gain made on the compulsory acquisition of your land into the replacement property you purchased.

2. Will the new property satisfy the conditions of 124-75 of the ITAA 1997?