Private ruling: Compensation - income - cost base
Date of advice: 11 March 2022
Published: May 2022
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the owners and occupiers of the land incur a GST liability on the receipt of the compensation amounts? | A1: No. | Q2: Do the receipts under the Conduct and compensation agreement (CCA) constitute assessable income in accordance with section 6-5 of the Income Tax Assessment Act 1997 (ITAA97)? | A2: No. | Q3: Do the receipts under the CCA constitute capital proceeds under Division 116 of the ITAA 97 in respect of a CGT event happening? | A3: No. | Q4: Do the receipts in the CCA reduce the cost base of the land and improvements under Subdivision 110-A of the ITAA97? | A4: Yes

Relevant facts and circumstances: XXXX and XXXX own "XXXX", a property. The relevant lots are Lot XX, Lot XX and Lot XX on Survey Plan XX. XXXX is the sole legal owner of Lot XX and Lot XX while XXXX and XXXX are the joint owners of Lot XX. Landholders acquired all land after 19 September 1985 and accordingly its disposal would be subject to consideration of capital gains tax. The landholders have entered into a Compensation and Conduct Agreement ('CCA') signed on XX/XX/XXXX with XXXX as agent for XXXX. While the landholders own the land (as set out above) the XXXX Trust carries on a business on the land. The CCA compensates the landholder for the impact of all X related activities on the Property. Proposed activities under the current CCA? The CCA provides that XXXX has appointed XXXX to carry out Authorised Activities on its behalf. The CCA acknowledges that XXXX and XXXX (landholders) are the only eligible claimants for the activities that XXXX intends to carry out on the land. Section XXX of the Relevant Act defines the general liability of XXXX to compensate each owner/occupier of private and public land that is in an authorised area for any Compensatable effect the eligible claimant suffers as a result of authorised activities carried out by the holder or a person authorised by the holder. Subsection XX of section XXX goes on to define 'Compensatable effect'. The CCA provides that the Landholder has had the opportunity to seek professional advice before signing the CCA and XXXX will compensate/reimburse the landholder under the Legislation for reasonable and necessary accounting, legal, valuation and agronomy costs incurred negotiating the agreement. Schedule 1 to the CCA provides further information on the nature of the reimbursements for professional costs. The CCA provides as follows in relation to the duration of the agreement: This Agreement commences on the Agreement Date and ends: a. when XXXX gives the Landholder notice that it has completed all of the activities that XXXX proposes to carry out on the Land or that it will not proceed with any Activities; It is noted that XXXX is not required to carry out all or any of the Activities set out in the CCA. Compensation under the CCA The CCA outlines how the compensation will be paid and provides that XXXX must pay compensation to the Landholder in the amount and time set out in the CCA. The CCA provides an explanation of what the compensation is designed to compensate the Landholder for and states: Under the CCA the following relevant compensation clauses: The CCA provides that the Landholder releases XXXX from any Liability to the Landholder regarding the Compensation matters subject to the terms of the Agreement. The CCA provides that if a review notice is given the parties must act reasonably to review the Compensation. The compensation to be paid is set out in the CCA and provides that XXX will pay the following compensation to the Landholder: Trigger event Amount Timing for payment CPI Adjustment a. The Agreement Date $XXXX Payable once within 30 Business Days of the Agreement Date N/A b. The Agreement Date $XXXX Payable once within 30 Business Days of the Agreement Date N/A c. The Agreement Date $XXXX Payable in advance on or before each anniversary of the Agreement Date until the Pre-production Period ends All annual payments for the Pre-production Period that fall due on or after the second anniversary of the Agreement Date must be varied by the CPI Formula d. The Agreement Date $XXXX Payable in advance in or before each anniversary of XX XXXX. All annual payments must be varied by the CPI Formula. For the purposes of the first payment made under this item (d): e. The Agreement Date $XXXX Payable in advance on or before each anniversary XX XXXX. All annual payments must be varied by the CPI Formula. For the purposes of the first payment made under this item (e): f. When each Non-production Notice is given $XXXX Payable once within 30 Business Days after the relevant Non-production Notice is given N/A g. When each Non-production Notice is given $XXXX Payable in advance on or before each anniversary of the day the relevant Non-production Notice is given until the Non-production Period ends All annual payments for the Non-production period that fall due on or after the second anniversary of the day the relevant Non-Production Notice is given must be varied by the CPI Formula h. When the first Production Notice is given Note: If multiple Production Notices are given, no further compensation is payable under this item for subsequent notices (as compensation based on the Minimum Well Number is paid after the first Production Notice is given) $XXXX Payable once within 30 Business Days after the relevant Non-production Notice is given N/A i. When the first Production Notice is given Note: If multiple Production Notices are given, no further compensation is payable under this item for subsequent notices (as compensation based on the Minimum Well Number is paid after the first Production Notice is given) $XXXX Payable three times:- •firstly - advance on or before the first anniversary of the day the first Production Notice is given; •secondly - in advance on or before the second anniversary of the day the first Production Notice is given; and •thirdly - in advance on or before the third anniversary of the day the first Production Notice is given. N/A j. When the first Production Notice is given $XXXX Payable in advance on or before each anniversary of the day the first Production Notice is given, starting from the fourth anniversary of the day the first Production Notice is given until the end of the Term All annual payments in respect of Production Activities under or equal to the XX that fall due on or after the fifth anniversary of the day the relevant Production Notice is given must be varied by the CPI formula. k. Each time a Production Notice is given and the XX is over the XX $XXXX Payable three times:- •firstly - within 30 Business Days after the relevant Production Notice is given; •secondly - in advance on or before the second anniversary of the day the first Production Notice is given; and •thirdly - in advance on or before the third anniversary of the day the first Production N/A l. Each time a Production Notice is given and the XX is over the XX $XXXX Payable in advance on or before each anniversary of the day the relevant Production Notice is given, starting from the third anniversary of the day the relevant Production Notice is given until the end of the Term All annual payments in respect of XX over the XX that fall due on or after the fourth anniversary of the day the relevant Production Notice is given must be varied by the CPI Formula. Activities proposed to be carried out The CCA identifies all of the activities to be carried out on the land under the CCA. The activities include that XXX will be undertaken on the land. XXX is the XXXXX. The XXXXX will be over the land owned by the Landholder. The Landholder has concerns that the XXXXX may cause permanent damage to the land. Given that the related activities on the Property will be part of an overall network of activities carried on in the district by XXXX, it is expected that additional work will be necessary to connect the system on the Property with the gathering system on neighbouring properties. The CCA provides that XXXX will consult with the Landholder regarding the proposed location of the Other Activities and use best endeavours to accommodate the Landholder's reasonable proposals regarding the location of the activities. The exact location of the activities will be negotiated and concluded between the Landholder and XXXX. The particular agreement is a Conduct and Compensation Agreement and in this respect the CCA does not provide an exact date as to when the infrastructure will be constructed on the land. While no specific date for the commencement of construction has been provided the Landholder expects that the additional construction as required will take place in the XXXX calendar year. The CCA provides guidance as to the process of carrying out the activities on the land. While the CCA sets out the activities to be carried on in relation to the land, changes can subsequently be made to the activities: The extent of potential changes to the activities is extensive, and in many respects the full extent of the actual activities will not be known until the conclusion of the construction phase. The Landholder will need to continually monitor and engage with XXXX in relation to the activities that are being carried on by XXXX or their agents, contractors or employees during the construction phase to ensure that the activities minimise the impact on the land and the commercial enterprises that can be carried out on the land. Given that the Landholder will continue to live on the Property during the construction period and thereafter, there is significant concern in relation to the impact that noise and dust may have on their quiet enjoyment of the property both during the construction and operational phase. The presence of these clauses is of concern to the Landholder because the effect of these clauses is that the Landholder is taking financial responsibility for any compensation claim that may be brought by a tenant or other party for the noise impacts. At a minimum, the fact that the Landholder is indirectly responsible for compensating other affected parties it has the potential to impact negatively on the relationship between the Landholders and any person residing or working on the property. Unauthorised damage may occur during the course of the construction activities and the CCA provides that the repairs should be performed by XXXX within a reasonable period or alternatively the landholder may repair the damage and should be compensated for the reasonable costs of undertaking the repairs. Under the CCA, the infrastructure remains the property of XXXX and that the Landholder should not interfere with or damage the infrastructure or carry out high risk activities that have the potential to damage the underground infrastructure. The CCA confirms that XXXX must comply with all relevant laws in relation to declared weeds when accessing the land and that all reasonable care must be taken to ensure that there is no spread of weeds. This has the effect that all equipment that may come onto the land must have a weed hygiene inspection certificate that must be shown on request and it is expected that if the certificate cannot be produced then the relevant vehicle must immediately leave the property or park in a safe location until a weed hygiene inspection certificate can be produced. Additionally, the mere fact that access can be made to the land in the first place by all equipment and vehicles means that the natural weed bio-security barrier has been broken or at least permanently damaged for the duration of the CCA. Other Factors Recognised in Determining the Compensation Amount The CCA negotiations took into account the negative stigma of having X activity on the land which include the concept of blight on the land where the land has an unwelcome attribute and depresses the overall value of the property. The impact of the blight on the land will include the diminution in the long-term market value of the land as a result of having industrial activities on the land. This negative stigma is particularly concerning in the context of potential consumers, where such consumers may have diminished demand for XX in an industrial environment. There may be some very limited and temporary support for the market value of the land because of the landholder's entitlement to annual compensation payments however this temporary support disguises the fact that the actual market value of the land itself has fallen substantially/drastically as a result of the construction activities on the land. However, when the ongoing compensation ceases or dries up and the permanently damaged land is valued purely on its capacity to produce income from related primary production activities the real impact of the X activity on the land will be evident. It is noted that diminution also covers the concept of lesser marketability of the land as a result of the activities on the land. It is expected that greater difficulty in travelling within the property and to visit neighbouring properties will exist due to the interruptions caused by the activity. Due to the general inconvenience from the presence of structures on the land it will generally take longer to undertake common pastoral and farming activities including the management and movement of livestock and undertaking common farming tasks. In addition, due to the short timeframes presented by the weather, these additional time-consuming inconveniences may result in certain activities not being completed on time or at all. A further restriction that the activity has on the land includes the potential limitations on the nature and range of agricultural enterprises that may be carried out on the land. For example, the fact that certain activities cannot be carried out proximate to the gathering system may result in an inability to use laser levelling on the land or any other enterprise that may require deep cultivation of the soil. The reduction in the number of enterprises (see earlier discussion in relation to the grazing land) that may be carried out on the land is very likely to result in a reduction in the number of potential buyers interested in the Property with the consequence that the market value of all of the land reduces. The presence of the X activity has impacted and will continue to impact the existing quality of life, lifestyle, quiet enjoyment or amenity for the human inhabitants on the property. The visual impact of viewing the infrastructure will be ever-present; additional people in the district during the construction period (and ongoing) and so potentially a sense of diminished personal safety in a formerly remote area. Residents can expect to feel that they live in an industrial zone where they are constantly reminded of the fact that they are in the centre of extensive infrastructure with noise and visual disturbance ever-present. The value of non-business assets will significantly reduce in value due to the perceived and actual lesser quality of life. There is potential reduction to the value of farm output due to the risk of contamination to farm output (soil and other chemical contamination impacting on livestock or crops produced); risk to or reduction in the value of market status such as export beef, MSA beef, chemical free/organic output, etc. With highly regulated commodities, the public is very vigilant of the environment in which commodities are produced. If the value of farm production fell due to any of the above factors, then this would have a direct impact on the value of the business carried out on the land and so result in a permanent reduction in the value of the land on which grazing and cultivation activities to produce the high-quality crops are carried on. Due to the demand from the XX industry for goods and services in the district the cost of undertaking normal grazing and farming activities has increased substantially and such increased costs include the costs of maintaining/repairing equipment, the cost of engaging contractors to undertake tasks such as earthmoving and the cost of purchasing farm equipment. Prices for these goods and services were formerly set at a figure that accommodated what grazing and farming activities in the district could sustain but due to the fact that the X industry can pay substantially more, the prices for these goods and services have increased to a level that makes it extremely difficult to pay and remain viable. In other words, there is a permanent reduction in the potential net income possible from agricultural/pastoral activities such as the ones carried out by the landholder. This permanent reduction in profitability will be directly reflected in a reduction in the value of the land. In relation to the bio-security control for the livestock run on the property, the former natural barriers of remoteness and limited entry by parties are permanently damaged due to the high volume of traffic that on an on-going basis will come and go through the property as a result of the X activity. In other words, the natural bio-security barriers/controls have ceased to exist and any measures to maintain an acceptable level of bio-security are very costly but these measures cannot mend the permanent damage that has already been done to the natural bio-security defences of the property. The continued viability of the enterprises on the properties is dependent on the presence of a reliable supply of good quality water. Where the construction activities impact on the natural water flows on the Property then the ability to keep the dams filled may be permanently impacted. Additionally, it is expected that water extracted will reduce the overall level of water in the aquifer. In other words, if the water extraction is greater than the normal recharge of the aquifer then permanent damage may be done to the water resource on the property and thus further reducing the market value of the land. The noise during the construction is expected to be significant and there will be on-going noise. The negotiations for the CCA included a recognition of the significant construction and operational noise impact on the landholders and their acquiescence of the higher levels of noise resulting in the diminution in the value of the land and homestead.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 subsection 6-5(2) | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 division 104 | Income Tax Assessment Act 1997 section 110-40 | Income Tax Assessment Act 1997 subsection 110-40(3) | Income Tax Assessment Act 1997 subsection 110-45(3) | Income Tax Assessment Act 1997 division 116 | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-10 | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-10(1) | A New Tax System (Goods and Services Tax) Act 1999 section 9-15 | A New Tax System (Goods and Services Tax) Act 1999 section 9-40

Reasons for decision: Detailed Reasoning - GST treatment of the compensation payments: Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity makes a taxable supply if, amongst other requirements, the entity makes the supply for consideration. The existence of a 'supply' itself is an essential element in determining whether there is a taxable supply under section 9-5 of the GST Act. Section 9-40 of the GST Act provides GST is payable on taxable supplies. Section 9-5 provides that you make a taxable supply if: a) you make the supply for consideration b) the supply is made in the course or furtherance of an enterprise that you carry on c) the supply is connected with the indirect tax zone (Australia) d) you are registered or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. To determine whether you are making any supplies when entering into the CCA within the meaning of the GST Act we need to examine whether any activities of yours or obligations you enter into can be characterised as a supply. The existence of a 'supply' itself is an essential element in determining whether there is a taxable supply under section 9-5 of the GST Act. | Detailed Reasoning - Supply: The term 'supply' is defined in subsection 9-10(1) of the GST Act as 'any form of supply whatsoever'. Paragraph 9-10(2)(g) of the GST Act provides that a supply includes: an entry into, or a release from, an obligation: i. to do anything; or ii. to refrain from an act; or iii. to tolerate an act or situation. The statutory definition of 'supply' is very broad. Essentially, a supply is something which passes from one entity to another, and may be one of goods, services or something else. | Detailed Reasoning - Consideration: Section 9-15 of the GST Act provides that a payment will be consideration for a supply if the payment is 'in connection with' a supply and 'in response to' or 'for the inducement' of a supply. Thus, there must be a sufficient nexus between a particular supply and a particular payment, which is provided for that supply, for there to be a supply for consideration. | Detailed Reasoning - Sufficient nexus: A sufficient nexus between the compensation amounts and a supply must exist to create the 'supply for consideration' relationship. The issue is whether the landholders have provided something to XXXX, in return for the compensation amounts that are paid to them Goods and Services Tax Ruling 2006/9 Goods and services tax: supplies (GSTR 2006/9) examine the meaning of supply under section 9-10. Paragraph 22 of GSTR 2006/9 outlines the ten propositions which may be relevant to characterising and analysing supplies. The relevant propositions include: • Proposition 5: To 'make a supply' an entity must do something • Proposition 6: ''Supply' usually, but not necessarily, requires something to be passed from one entity to another'. Proposition 5 provides that an entity will make a supply whenever that entity (the supplier) provides something of value to another entity (the recipient). This is consistent with the ordinary meaning of 'supply', being to furnish or provide. When analysing an arrangement to determine the GST consequences, it is necessary to examine the terms of the transaction documents between the parties and the facts and circumstances in which the arrangement is carried out to identify what is being supplied. While there is provision in the CCA for access to land arrangements and consent to the activities, withholding consent or agreement to land access and the activities does not prevent XXXX from exercising and enforcing its statutory rights to conduct the activities on your property. A CCA sets the parameters for access to land and conducting authorised activities; it is not the source of the authority to access land and conduct authorised activities. That authority comes from the resource authority, issued under statute. The provision of access to the land is not within your control and not something you are able to supply. Therefore, when you entered into the CCA you did not supply anything to XXXX, nor did you enter into an obligation to tolerate an act or situation that was not already authorised by statute. Rather, you agreed to the compensation that is to be paid for the damage that will be done to your property and interference to your quiet enjoyment and use of those properties by the authorised activities. Paragraph 84 of GSTR 2006/9 provides a useful analogy to your circumstances with respect to compensation received from a compulsory acquisition of land: 84. Mere acceptance by an owner of an amount of compensation payable on the compulsory acquisition does not provide a sufficient nexus between the land which passes and the means by which it passes. The fact that the owner does not dispute the acquisition is not an activity that effects the supply of the land. Even if the owner agrees to the terms of the acquisition and the amount of compensation, the land is acquired by operation of the statute, upon publication of the acquisition notice, not by an action taken by the landowner. Regarding the landholders giving up their rights for further compensation upon commencement of the agreement, this raises the issue of whether giving up of a landholder's rights would be a separate supply or as termed in Goods and Services Tax Ruling 2001/4: Goods and Services Tax: GST consequences of court orders and out-of-court settlements (GSTR 2001/4) a 'discontinuance supply'. Paragraphs 106 to 109 in GSTR 2001/4 discuss discontinuance supplies as follows: 106. Where the only supply in relation to an out-of-court settlement is a 'discontinuance' supply, it will typically be because the subject of the dispute is a damages claim. In such a case, the payment under the settlement would be in respect of that claim and not have a sufficient nexus with the discontinuance supply. 107. In most instances, a 'discontinuance' supply will not have a separately ascribed value and will merely be an inherent part of the legal machinery to add finality to a dispute which does not give rise to additional payment in its own right. They are in the nature of a term or condition of the settlement, rather than being the subject of the settlement. 108. We do not consider that the inclusion of a 'no liability' clause in a settlement deed alters this position. 'No liability' clauses are commonly included in settlement agreements and we do not consider their inclusion to alter the substance of the original dispute, or the reason payment is made. 109. We consider that a payment made under a settlement deed may have a nexus with a discontinuance supply only if there is overwhelming evidence that the claim which is the subject of the dispute is so lacking in substance that the payment could only have been made for the discontinuance supply. Paragraph 71 to 73 in GSTR 2001/4 states the following in relation to damages: 71. Disputes often arise over incidents that do not relate to a supply. Examples of such cases are claims for damages arising out of property damage, negligence causing loss of profits, wrongful use of trade name, breach of copyright, termination or breach of contract or personal injury. 72. When such a dispute arises, the aggrieved party will often assert its right to an appropriate remedy. Depending on the facts of each dispute a number of remedies may be pursued by the aggrieved party in order to ensure adequate compensation. Some of these remedies may be mutually exclusive but it is still open to the aggrieved party to plead them as separate heads of claim until such time as the matter is resolved by a court or through negotiation. 73. The most common form of remedy is a claim for damages arising out of the termination or breach of a contract or for some wrong or injury suffered. This damage, loss or injury, being the substance of the dispute, cannot in itself be characterised as a supply made by the aggrieved party. This is because the damage, loss, or injury, in itself does not constitute a supply under section 9-10 of the GST Act. Paragraphs 110 and 111 of GSTR 2001/4 further explain: 110. With a dispute over a damages claim, the subject of the dispute does not constitute a supply made by the aggrieved party. If a payment made under a court order is wholly in respect of such a claim, the payment will not be consideration for a supply. 111. If a payment is made under an out-of-court settlement to resolve a damages claim and there is no earlier or current supply, the payment will be treated as payment of the damages claim and will not be consideration for a supply at all, regardless of whether there is an identifiable discontinuance supply under the settlement. Although the above explanation in GSTR 2001/4 is made in respect of court orders and out-of-court settlements, the underlying principles are equally relevant in this case. The payment by XXXX to the landholders is compensation in respect of any damage caused or likely to be caused to the land and any inconvenience suffered by the landholders as a consequence of the authorised activities carried out on the land. In applying the above principles in GSTR 2001/4 to the present circumstances, the compensation amounts are paid to the landholders to resolve a potential damage claim. A claim for damages (or payment that the landholders receive as a consequence of such claim) due to activities conducted by XXXX on the landholder's land, does not constitute a supply under section 9-10 of the GST Act. The landholders do not create, transfer or surrender any rights related to these activities on the land to XXXX. Hence, there is no further supply made by the landholders to XXXX, instead the payments in the CCA's are compensation in respect of any damage caused or likely to be caused to the land, for example the diminution of the value of the land, as a consequence of activities being carried out. The landholder does not provide XXXX with any supply in return for the compensation amounts. As such, the compensation payments made by XXXX are not consideration for a supply from the landholder to the company, and accordingly no taxable supply will be made by the landholder. | Detailed Reasoning - Compensation payments as ordinary income: Section 6-5 of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year. Compensation paid due to loss and damage of a capital asset is an isolated transaction. Whether a profit from an isolated transaction is income according to ordinary concepts depends on the circumstances of the case. Profits from an isolated transaction are generally ordinary income when both of the following elements are present: a) the intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain, and b) the profit was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction (paragraph 6 of Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income ). Neither of the above elements apply in your situation. The compensation payments were made in accordance to the legislative provisions of the relevant legislation. Accordingly, the compensation payments paid under the CCA do not give rise to income according to ordinary concepts or to a profit arising from a profit-making undertaking or plan pursuant to section 6-5 of the ITAA 1997. You did not enter into the arrangement to make a profit. Rather, you as a landholder, entered into the arrangement in order to receive compensation for damage that will be caused by the activities. The compensation amounts are not included in your assessable income under section 6-5 of the ITAA 1997. | Detailed Reasoning - Compensation payments and the capital gains tax (CGT) provisions: Under section 6-10 of the ITAA 1997 some amounts that are not ordinary income are included in your assessable income due to another provision of the tax law. These amounts are statutory income. Statutory income may arise from CGT events as consequence of an eligible claimant being entitled to receive compensation for the loss and destruction of a CGT asset. Taxation Ruling TR 95/35 Income tax: capital gains: treatment of compensation receipts provides the Commissioner's view as to the CGT consequences of receiving a compensation payment. The ruling provides that it is necessary to identify the underlying asset to which the payment relates and what has occurred to that asset. The underlying asset is the asset that, using the 'look-through' approach, is disposed of or has suffered permanent damage or has been permanently reduced in value because of some act, happening, transaction, occurrence or event which has resulted in a right to seek compensation from the person or entity causing that damage or loss in value or against any other person or entity. If there is more than one underlying asset, the relevant asset is the asset which leads directly to the payment of the amount of compensation. For example, if a taxpayer receives an amount of compensation for the destruction of his or her truck, the truck is the underlying asset. If an amount of compensation is received by a taxpayer wholly in respect of the disposal of an underlying CGT asset, or part of an underlying CGT asset, of the taxpayer the compensation represents consideration received on the disposal of that asset. In these circumstances, the Commissioner considers that the amounts are not consideration for the disposal of any other asset, such as the right to seek compensation. If an amount of compensation is received by a taxpayer wholly in respect of permanent damage suffered to an underlying asset of the taxpayer or for a permanent reduction in the value of an underlying asset of the taxpayer, and there is no disposal of that underlying asset at the time of the receipt, then the amount represents a recoupment of all or part of the total acquisition costs of the asset. Accordingly, the total acquisition costs of the CGT asset should be reduced by the amount of the compensation. No capital gain or loss arises in respect of that asset until the taxpayer actually disposes of the underlying asset. If the compensation amount exceeds the total unindexed acquisition costs (including a deemed cost base) of the underlying asset, there are no CGT consequences in respect of the excess compensation amount. The activities under the CCA will result in permanent damage to, or a permanent reduction in the value of the land. As you did not dispose of all or part of the affected land there are no CGT consequences at the time of entering into the CCA or receiving the compensation payments. The land's acquisition cost will be reduced by the compensation payments received in relation to the land. That is, the cost base of the land will be reduced by the compensation payments and any gain or loss will crystallise at a later time when the land is disposed of.

Po in the CPI Formula = $XXX