Private ruling: Capital gains tax – pre-capital gains tax asset – subdivision - easement – disposal
Date of advice: 29 January 2019
Published: May 2019
Ruling period: Year ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Will you be able to disregard any capital gain made on the disposal of part of the pre-capital gains tax (CGT) Property to a public authority for the purpose of creating an easement under Parts 3-1 and 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. The easement in relation to part of the Property was created by operation of the relevant statute and is vested in the public authority. This constitutes a compulsory acquisition of the easement and the compensation amount received by you in relation to the creating of the easement is viewed as being received as a result of the disposal of part of the Property. Therefore, as the Property is a pre-CGT asset, any capital gain made on the disposal of the part of the Property in relation to the creation of the easement is disregarded. | Q2: Will you be able to disregard any capital gain made on the disposal of the remaining part of the pre-CGT Property under Parts 3-1 and 3-1 of the ITAA 1997? | A2: Yes. In accordance with subsection 112-25(2) of the ITAA 1997 the remaining portion of the Property will retain its pre-CGT status following the subdivision of the Property due to the creation of the easement. Therefore, any capital gain made on its disposal of that portion of the Property will be disregarded.

Relevant facts and circumstances: You acquired the Property as joint tenants prior to the 20 September 1985. You used the Property in conjunction with other properties you owned for primary production purposes for a number of decades when you ceased the commercial farming activities due to your age and health issues. You continued to use the Property for grazing cattle. After a number of years you entered into separate agreements with Company XYZ for the sale of the Property and your other properties. Subsequent to entering into the agreements with Company XYZ, part of the Property was purchased by a public authority for the purpose of creat ing an easement, for which you received an amount of compensation.

Relevant legislative provisions: Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Part 3-3