Private ruling: Compensation payment
Date of advice: 25 May 2018
Published: July 2018
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the compensation payments received under the terms of the compensation agreement be treated as an adjustment to the cost base of the land? | A1: Yes. Compensation payments for damage and loss of assets, for example, deprivation of possession of its surface, diminution of its value, diminution as stated in the Relevant Act 2004 is not ordinary assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Part 5 of the Relevant Act 2004 sets out the general compensation provisions. The holder of each Relevant authority is liable to compensate each relevant owner or occupier of private or public land, known as the ‘eligible claimant’. Where the compensation payment directly relates to the damage and loss of the underlying asset, the payment is treated as a reduction of the assets cost base and any statutory income arising from a CGT event will be deferred until the asset is disposed. You are an eligible claimant under the Relevant Act 2004 . You have entered into an agreement with Relevant Authority where you have received a lump sum payment and will receive ongoing yearly payments for the damage and loss of your underlying asset, accordingly the amounts you receive under the compensation agreement will be treated as an adjustment to the cost base of your land and are not assessable as ordinary income under section 6-5 of the ITAA 1997.

Relevant facts and circumstances: You own land with another individual. You have entered into a Compensation Agreement with a Relevant Authority. Schedule 2 of the agreement sets out the activities that Origin can carry out on your land, this includes that construction of a well, the installation of a pipeline, the installation of high point vents, low point drains and value pits, the use and access of roads, the establishment of access points and the construction of roads. Clause 9 states that you will receive compensation for all of the impacts of the Activities referred to under schedule 2, including the loss of use of part of the land, all impacts of noise, light, dust, odour, vibration, vehicular movements and the loss of amenity generally. Clause 10 states that the compensation you receive is also from the loss of quiet enjoyment of the land from the authorised activities carried out on land external to the land you own. You are an eligible claimant under the Relevant Legislation. You have received $X as a one off upfront payment in the first year of the agreement. You will receive $X per annum during the term of the agreement. The agreement in this case is pursuant to the Relevant Act 2004 .

Relevant legislative provisions: Relevant Act 2004 Subsection 532(1) | Relevant Act 2004 Subsection 532(4) | Relevant Act 2004 Section 534 | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 15-15 | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Paragraph 108-5(1)(b) | Income Tax Assessment Act 1997 Subsection 104-35(1) | Income Tax Assessmen t Act 1997 Paragraph 104-25(1)(b)