Private ruling: Capital proceeds
Date of advice: 2 February 2018
Published: June 2018
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the balance paid to you on the termination of the lease the capital proceeds of the Capital Gains Tax (CGT) event? | A1: Yes.

Relevant facts and circumstances: In early 20XX you entered into lease agreement with a retirement village operator, known in the agreement as the Company and the Manager. The Lease agreement provides that the departing resident receives the balance of the amount paid by the new ingoing resident less any deductible fees. Recently you have been approached by the Company and the Manager to enter into a new contract/arrangement for the purposes of reducing their ongoing management fees in the future. The Balance you will be entitled to on termination of the current lease as detailed in schedule one on the Deed: Calculation of Termination Payment New Price $XXX Less Fee $XXX Termination Payment $XXX You maintain a main residence separate to your accommodation in the retirement village.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 108-5 | Income Tax Assessment Act 1997 Section 116-20

Reasons for decision: Summary: A capital gain or a capital loss may arise if a capital gains tax (CGT) event happens to a CGT asset. Section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a CGT asset is any kind of property, or a legal or equitable right that is not property. In most cases the surrender of a lease will result in CGT event A1 happening to the occupant. The payment received by the occupant is in consideration for agreeing to terminate the contractual rights under the lease. For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset - for example, if you sell an asset for more than you paid for it, the difference is your capital gain. The capital proceeds of a CGT event are defined in section 116-20 of the ITAA 1997 as being the money received (or entitled to receive) in respect of the event happening, or the market value of any property received in respect of the event happening. In your case, CGT event A1 will occur when your contract with the Company and the Manager is terminated. As per the Lease Agreement, when the lease is terminated you will only ever be entitled to the balance of the outgoing amount less the fees listed in the clause. Therefore, the capital proceeds of the A1 event will be the balance calculated on the termination of the lease.