Private ruling: capital gains tax
Published: May 2012
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011
Date scheme commenced: 1 July 2009

Ruling: Q1: If some amount of the Exceptional Circumstances Exit Grant (ECEG) is assigned to CGT event D1, should this amount be apportioned between you and your spouse? | A1: Yes | Q2: If some amount is assigned to CGT event D1, should this amount be returned in the year in which the ECEG was received (year ended 30 June 2011)? | A2: Yes

Relevant facts and circumstances: You and your spouse operated a primary production business. The farmland was owned solely by your spouse. The business was significantly affected by the continuing drought. You and your spouse decided to exit farming. The farmland was sold under a contract in the 2009-10 income year. Centrelink conducted a number of programs to entice farmers in financial difficulty to exit farming, one of which was the ECEG. The ECEG is cited in a Centrelink publication as being a one-off taxable payment of up to $150,000 for farmers who sold their farm enterprise. At the time of selling the property, you and your spouse made enquiries to Centrelink as to their eligibility for the ECEG. You submitted an application for the ECEG. An application for the ECEG does not allow for a joint application for spouses. A single applicant must be nominated and then the spouse's details are provided later in the form. The policy guidelines for the ECEG state that: It is a condition of the making of the EC Exit Grant that the applicant (and their partner, whether or not they remain a couple) who receives the grant must, by signing a statement, declare that they will not become an owner or operator of a farm enterprise within 5 years of exiting the farming industry based on the date of settlement of sale. The application was submitted in your spouse's name only; however you also signed the declaration included in the application. The ECEG was approved in the 2010-11 income year and your spouse subsequently received the payment.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-35

Reasons for decision: Summary: CGT event D1 happens under section 104-35 of the Income Tax Assessment Act 1997 (ITAA 1997) 'if you create a contractual right or other legal or equitable right in another entity.' (emphasis added) Application to your circumstance In this instance the restrictive covenant is created between the Commonwealth and both you and your spouse. It follows that the 'you' referred to in subsection 104-35(1) of the ITAA 1997 is a reference to both parties. Whilst the grant was made in your spouse's name only, this was as a result of the administrative practices of Centrelink. The application process was such that only one individual could apply on behalf of the relevant entity carrying on the primary production business. Despite this, the 'Exceptional Circumstances Exit Package 2007 Policy Guidelines' states the following: It is a condition of the making of the EC Exit Grant that the applicant (and their partner, whether or not they remain a couple) who receives the grant must, by signing a statement, declare that they will not become an owner or operator of a farm enterprise within 5 years of exiting the farming industry based on the date of settlement of sale. If you determine that some or all of the ECEG is received in relation to the D1 CGT event then it happens both to you and your spouse. Accordingly, the amount should be apportioned on a reasonable basis between you. For D1 CGT events subsection 104-35(2) of the ITAA 1997 provides that the time of the event is when you enter into the contract or create the other right. Application to your circumstance The right was created when your spouse received a letter of approval in relation to the ECEG in the 2010-11 income year. It follows that any capital gain apportioned to CGT event D1 in relation to the five year restrictive covenant will be included in the year ended 30 June 2011.

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