Private ruling: Real property disposal - timing of CGT event
Date of advice: 27 February 2026
Published: 13 April 2026
Ruling period: Year ending 30 June 202X | Year ending 30 June 202X
Date scheme commenced: X Month 19XX

Ruling: Q1: Will any capital gain the Taxpayers make from the disposal of the Farmland be disregarded under section 104-10(5) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: Overview Individual A was the lessee the Farmland that was granted by the Crown in Month 19XX under the relevant state Land Act. Individual A transferred the Farmland to Individuals B and C (Taxpayers), who then sublet back the Farmland to Individual A under a sub-lease agreement. In 19XX, the Taxpayers' leasehold tenure in the Farmland was converted to a freeholding tenure. The Taxpayers intend to transfer the Farmland to their children. Chronology of events The chronology of events leading to the transfer of the Farmland to the Taxpayers are stated in the succeeding paragraphs, based on the information and documentation supplied by the Taxpayers. Sometime in Month 19XX, individual A offered to transfer the Farmland to the Taxpayers if they agreed to sublet back to Individual A for xx years at a specified annual rent. The offer has been accepted, and a draft sub-lease agreement was made. As debts were owed by Individual A to the bank secured by mortgage, the bank required the Taxpayers to take over the existing debt of Individual A secured by mortgage. In Month 19XX, the bank confirmed to the Taxpayers that the advance of money to take over the existing debt of Individual A has been approved. In Month 19XX, the Land Commissioner advised the Taxpayers that the transfer of the Farmland would only be allowed provided certain conditions are met. They included: (a) transfer documents lodged promptly (b) evidence of the bank's consent to the transfer, or mortgage release documents, must be lodged with the transfer documents (c) certain amendments to the draft sub-lease agreement to be made. The Taxpayers and Individual A signed an amended sub-lease agreement after the Land Commissioner's requirements were complied with and the proposed amendments were made. The transfer of the Farmland was registered by the Land Commissioner at a date after the amended sub-lease agreement was signed by the parties. Taxpayers' contentions The Taxpayers have made the following contentions. • The offer by Individual A to transfer the Farmland and the engagement by the Taxpayers of solicitors regarding the transfer and sub-lease evidence that a disposal contract for the Farmland has been entered into by the parties. • The Taxpayers and Individual A subsequently agreed that the Taxpayers would assume Individual A's debt secured by mortgage. • The disposal contract was the source of the obligation that Individual A discharged when he transferred the Farmland to the Taxpayers and that the assumption of debt varied the consideration under the already existing disposal Contract, rather than relating to a new contract. • It can reasonably be construed from the correspondence supplied in evidence that the Taxpayers and Individual A entered into the debt assumption agreement prior to xx September 1985. • Applying item 1 of the table in section 109-5(2) of the ITAA 1997, the Taxpayers were deemed to have acquired the Farmland on the date they entered into the disposal contract, being sometime in Month 19XX. Roll-over relief The Taxpayers claimed they were entitled to roll-over relief in respect of the Farmland under section 124-575 of the ITAA 1997 for the following reasons: The grazing homestead freeholding lease in respect of the Farmland satisfied the definition of 'crown lease' in section 124-580 of the ITAA 1997, as it was granted by the Crown under the relevant state Land Act. (a) The grazing homestead freeholding lease in respect of the Farmland was taken to have been wholly surrendered by the Taxpayers under the relevant section under the relevant state Land Act. (b) A deed of grant in fee simple of the Farmland was issued to the Taxpayers. (c) The estate in fee simple relates to the same land as the grazing homestead freeholding lease. (d) The estate in fee simple was granted to the Taxpayers by converting the grazing homestead freeholding lease to an estate in fee simple. The Taxpayers contend that as they acquired the grazing homestead freeholding lease in respect of the Farmland prior to xx September 1985, the Taxpayers are taken to have acquired the estate in fee simple in the Farmland prior to xx September 1985, under section 124-10(4) of the ITAA 1997. Entitlement to disregard any capital gain The Taxpayers contend that as they acquired the estate in fee simple in the Farmland prior to xx September 1985, any capital gain the Taxpayers make from the disposal of the Farmland will be disregarded under section 104-10(5) of the ITAA 1997.

Relevant legislative provisions: Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 subsection 104-10(1) | Income Tax Assessment Act 1997 subsection 104-10(3) | Income Tax Assessment Act 1997 subsection 104-10(4) | Income Tax Assessment Act 1997 subsection 104-10(5) | Income Tax Assessment Act 1997 paragraph 104-10(5)(a) | Income Tax Assessment Act 1997 Division 109 | Income Tax Assessment Act 1997 subsection 109-5(1) | Income Tax Assessment Act 1997 subsection 109-5(2) | Income Tax Assessment Act 1997 Subdivision 124-A | Income Tax Assessment Act 1997 Subdivision 124-J | Income Tax Assessment Act 1997 subsection 124-575(1) | Income Tax Assessment Act 1997 subsection 124-575(2) | Income Tax Assessment Act 1997 section 124-580 | Land Act 1962 to 1984 section 286

Reasons for decision: Summary: In this Ruling, all legislative references are to the Income Tax Assessment Act 1997 , unless otherwise indicated | Detailed Reasoning - CGT event A1: Subsection 104-10(1) provides that CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. If the taxpayer did not have ownership of the asset, then CGT event A1 cannot occur to that taxpayer. Subsection 104-10(3) provides that the time of CGT event is when you enter into the contract for the disposal of the asset, or if there is no contract, when the change of ownership occurs. Paragraph 104-10(5)(a) provides that a capital gain or capital loss is disregarded if the asset was acquired before xx September 1985. | Detailed Reasoning - Acquisition of a CGT asset: Division 109 contains the operative rules for determining when a CGT asset is acquired and establishes the time of acquisition for CGT purposes. The time when a CGT asset is acquired is crucial as it determines the CGT consequences which can arise in relation to the asset. Thus, if an asset was acquired before xx September 1985, there is generally no CGT liability which can arise from a CGT event happening in relation to the asset. A CGT asset is generally acquired at the time of the CGT event or when the other relevant event happens. In general, a CGT asset is acquired when the taxpayer becomes its owner (subsection 109-5(1)). The table in subsection 109-5(2) lists the specific rules which apply when a taxpayer acquires a CGT asset as a result of a CGT event happening. In regard of CGT event A1, where an entity disposes of an asset to you (except when compulsorily acquired), you acquire the asset when the disposal contract is entered into, or if none, when the entity stops being the owner. For the purposes of determining whether an asset was acquired before xx September 1985, the acquisition date is generally the date on which you became the legal owner of the asset. The issue of when a contract or agreement is formed and when a CGT asset was acquired have arisen in a number of cases. In Gardiner v FCT (2000) 44 ATR 1065 (Gardiner) , a taxpayer acquired a property through an oral agreement and later, a formal written contract. The Commissioner of Taxation argued that the written contract differed from the oral agreement regarding the property's size, purchase price, and parties. The AAT found that the contract was formed when the taxpayer's offer was accepted by the vendor even though the formal exchange of contracts happened two months later. The acceptance of the offer was documented through formal correspondence and was held to be the point at which the contract for acquisition was legally formed. In McDonald v FCT (1998) 38 ATR 563 (McDonald) , the taxpayer argued that a property was acquired under an oral agreement on xx September 1985, before the introduction of CGT. Although the contract was dated xx September, exchange did not occur until xx October 1985. The Court held that the contract was formed on xx October 1985, when the parties reached consensus with the intention to create legal relations evidenced by the formal exchange of contracts and mutual obligations. The Court confirmed that backdating the written document could not alter the legal formation date. | Detailed Reasoning - Transfer of Crown leases under the relevant state Land Act: A lease of Crown land grants an exclusive right to occupy and use the land for a specified period of time and for a specified purpose, subject to an annual rent. The relevant state Land Act governed the transfer of leases and licences at the time the transfer of the Farmland took effect from Taxpayer A to the Taxpayers. Section XXX of the relevant state Land Act allowed the transfer of leases and licences to qualified persons upon application by or on behalf of the lessee or licensee, with the permission in writing by the Minister who has the absolute discretion to grant or refuse to grant such permission. Every transfer of a lease or licence must be registered however the Registrar of Dealings will only register any such transfer when it has been permitted by the Minister. | Detailed Reasoning - Application to the Taxpayers' circumstances: The table in subsection 109-5(2) provides that in regard to CGT event A1, you acquire the asset when the disposal contract is entered into, or if none, when the entity stops being the owner. The relevant state Land Act governed the transfer of leases and licences at the time Individual A transferred the Farmland to the Taxpayers. The Taxpayers' representative sought consent from the Land Administration Commission to allow the transfer of the Farmland in Month 19XX. Whilst a draft sub-lease agreement has been enclosed in the said correspondence to the Land Commissioner, there were conditions precedent before approval can be granted. Section XXX of the relevant state Land Act made it mandatory for any transfer of leases and licences to be approved by the Minister for Land. The Minister has the absolute discretion to grant or refuse to grant such permission. In this case, the Taxpayers were required by the relevant bank to assume the debt owed by Individual A secured by mortgage before the bank consented to the transfer. Subsequently, the Land Commissioner advised the Taxpayers in Month 19XX that the transfer of the Farmland will be allowed if in order and lodged promptly. Certain requirements needed to be complied with, including providing evidence of the consent to the transfer from the bank and the required amendments to the draft sub-lease agreement were made. The amended sub-lease agreement was executed by the parties in Month 19XX, and the Land Commissioner registered the transfer at a later date. The Taxpayers have argued that the offer made by Individual A to transfer the Farmland and the acceptance by the Taxpayers prior to X Month 19XX constitutes a disposal contract between the parties. The debt assumption agreement merely varied the consideration under the existing disposal contract. The Taxpayers further contend, based on the correspondence they have provided in evidence that it is reasonable to assume that the debt assumption agreement occurred prior to xx September 1985. In real property disposal, a binding contract transferring the ownership of an asset will ordinarily trigger the CGT event. In an ordinary land contract, a contract may be binding before a formal agreement is executed. In Gardiner , the AAT found that the contract was formed when the taxpayer's offer was accepted by the vendor even though the formal exchange of contracts happened two months later. The acceptance of the offer was documented through formal correspondence and was held to be the point at which the contract for acquisition was legally formed However, in respect of Crown land, the relevant state Land Act prevents the formation of a binding contract until approval by the Land Commissioner. Only after the approval is obtained can the parties enter into a validly binding contract, hence trigger the CGT event. As the Land Commissioner advised the Taxpayers in Month 19XX of the requirements before the transfer can be approved, it can only be concluded that the approval was obtained after said date. Further, even if the draft sub-lease agreement may have been prepared prior in or around Month 19XX, the sub-lease agreement was signed by Taxpayer A and the Taxpayers in Month 19XX. The Taxpayers became the owners of the Farmland upon the approval of the transfer of the Crown lease pursuant to subsection 109-5(2) which occurred at a point post XX Month 19XX whereby the Land Commissioner noted transfer will be allowed provided the relevant documents be lodged and evidence provided. Hence, the Commissioner considers that the Farmland was acquired by the Taxpayers after xx September 1985. Any capital gains resulting from the sale of the Farmland in the future will not be disregarded under section 104-10(5) of the ITAA 1997 as the Farmland is a post-CGT asset. | Detailed Reasoning - CGT roll-over under section Subdivision 124-J: The Taxpayers maintained that a roll-over under section 124-575 applies in relation to the Farmland after it was converted to a freeholding tenure. We have addressed the roll-over under Subdivision 124-J in the succeeding paragraphs. Subdivision 124-J deals with roll-overs in situations where the holder of a Crown lease over land obtains a replacement asset when the lease is renewed, extended or converted to an estate in fee simple. Under subsection 124-575(1), a roll-over happens if: (a) a taxpayer holds a Crown lease over land (the 'original right') (b) the taxpayer surrenders the Crown lease or it expires, and (c) the taxpayer is granted an estate in fee simple or a new Crown lease over the land, or both (the 'new right'), and (d) the new right relates to the same land as the original right. For the roll-over to happen, subsection 124-575(2) provides that the estate in fee simple or new Crown lease must be granted by: • renewing or extending the term of the original Crown lease, mainly because the taxpayer held the original Crown lease • changing the purpose for which the land to which the original Crown lease related can be used • converting the original Crown lease to a Crown lease in perpetuity • converting the original Crown lease to an estate in fee simple • consolidating, or consolidating and dividing, the original Crown lease • subdividing the original Crown lease • excising or relinquishing a part of the land to which the Crown lease related, or • expanding the area of the land. A Crown lease for the purposes of the roll-over under Subdivision 124-J, is a lease of land granted by the Crown under an Australian law (other than the common law) or a similar lease granted under a foreign law (section 124-580). | Detailed Reasoning - Consequence of roll-over: The consequences of the roll-over are those that generally apply for replacement-asset roll-overs in Subdivision 124-A. The first element of the cost base and reduced cost base of the new Crown lease or estate in fee simple is worked out under those general rules. | Detailed Reasoning - Application to the Taxpayers' circumstances: Subdivision 124-J deals with the roll-over on the renewal or conversion of Crown lease. As the Farmland was originally a Crown lease and was converted to an estate in fee simple, we accept that it satisfies the conditions under section 124-575, hence the roll-over will occur automatically. As previously discussed, the Commissioner has determined that the Taxpayers have acquired the Farmland after xx September 1985, and became a post-CGT asset. Consequently, the CGT provisions under Part 3-1 will apply when the Taxpayers transfer the Farmland to their children. CGT event A1 will happen when the Taxpayers dispose of their asset by way of transfer of the Farmland to their children. Subsection 104-10(4) provides that you make a capital gain if the capital proceeds from the disposal are more than the asset's cost base. You make a capital loss if those capital proceeds are less than the asset's reduced cost base.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar