Private ruling: Capital gains tax – the compulsory acquisition of a capital gains tax asset and replacement asset roll-over
Date of advice: 7 March 2019
Published: June 2019
Ruling period: Year ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Will an indirect investment in an Australian Property Trust satisfy the conditions of a replacement capital gains tax (CGT) asset under subsection 124-75(4) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. An indirect investment in a property trust can be said to be used for the purpose of benefiting from rental income and capital growth from real property and can reasonably be viewed as being used for the same purpose or at least ‘a similar purpose’ as a direct investment in a rental property. Therefore, as your original asset was a rental property, an investment in an Australian Property Trust will satisfy the requirements for a replacement CGT asset. Accordingly any capital gain that you make as a result of the partial compulsory acquisition on the property can be rolled over. Further information about involuntary disposal of a CGT asset can be found by searching 'QC 17204 ' on ato.gov.au

Relevant facts and circumstances: You acquired a property in a relevant State after 20 September 1985 as tenants in common (the Property). The Property was XX square metres in size. You purchased the Property for the purpose of generating income and benefiting from capital growth. The Property has been rented for the entire time you owned it. By a Notice of Acquisition issued on XX February 20XX, an Authority compulsorily acquired X square metres of the Property. You retained ownership of the balance of approximately X square metres. The partial compulsory acquisition was conferred by an Australian law. The Authority will pay you monetary compensation for the partial compulsory acquisition of the Property. You will make a capital gain as a result of the partial compulsory acquisition of the Property. The Property continued to be rented out until it was sold. You considered purchasing another rental property as a replacement asset, however the monetary compensation that will be received is insufficient to purchase a suitable replacement. You have decided to invest the monetary compensation you will receive in an Australian Property Trust and will do so by 30 June 20XX. You will hold the replacement asset (investment in the property trust) as a long term asset.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Subsection 108-5(2) | Income Tax Assessment Act 1997 Section 124-75 | Income Tax Assessment Act 1997 Section 124-85