Private ruling: Assessability of compensation for lost coal rights
Published: December 2013
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the ex gratia compensation payment for coal rights compulsorily acquired a capital receipt? | A1: Yes. | Q2: Is any capital gain or loss disregarded? | A2: Yes.

Relevant facts and circumstances: You and your spouse jointly acquired a property prior to 20 September 1985. The property has been your principle place of residence since the time of purchase. Prior to 20 September 1985 you state government passed legislation which vested all un-mined coal to the crown. The effect of the Act was that the government became the owner of all un-mined coal in the state. Land owners whose property contained coal were entitled to compensation for the loss of mineral rights previously allocated to their land holdings. You did not receive compensation at the time of the act coming into effect. Several years after 20 September 1985, the property was transferred solely to you as part of a family law property settlement. You have been offered an amount as an "ex gratia" payment from your state government for coal mined by a coal company under your main residence.

Relevant legislative provisions: Income Tax Assessment Act 1997 sections 126-5 | Income Tax Assessment Act 1997 section 104-10 | Family Law Act 1975 | Coal Acquisition Act 1981 (NSW)

Reasons for decision: Summary: Taxation Ruling TR 95/35 Income tax: capital gains: treatment of compensation receipts outlines the capital gains tax consequences for a person who receives compensation for permanent damage or reduction in value caused to their property by a development. Compensation can include monetary amounts and benefits in kind. An amount of compensation received by a taxpayer, in respect of a part of a CGT asset, is considered to represent consideration received on disposal of that part of the asset. | Detailed Reasoning - CGT and marriage breakdown: Where a CGT asset is transferred from one spouse to another in compliance with a court order under the Family Law Act 1975 , a CGT roll over event occurs. If this even occurs to a pre-CGT asset, you are considered to have acquired the asset before 20 September 1985. | Detailed Reasoning - Tax treatment of the payment: In your case, you and your spouse purchased the property prior to 20 September 1985, which means the property, including unmined coal, is a pre-CGT asset. Subsequently, the whole of the property was transferred into your name as a result of a family law property settlement. Accordingly, both of your interests in the property (that is your original interest and the interest you received subsequently) are considered to be pre-CGT assets. Subsection 104-10(5) of the Income Tax Assessment Act 1997 provides that a capital gain or loss is disregarded if the asset is acquired before 20 September 1985. Therefore any capital gain or capital loss in relation to the ex-gratia payment is disregarded.