Private ruling: Capital gains tax roll-over relief
Ruling period: 1 July 2009 to 30 June 2010

Ruling: Question and Answer | Can you elect the capital gains tax roll-over relief under subdivision 124-B of the Income Tax Assessment Act 1997 for land you already own? | No. | Can you elect the capital gains tax roll-over relief under subdivision 124-B of the Income Tax Assessment Act 1997 for the investment unit you intend to build on land you own? | No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. On or after 20 September 1985 you purchased an investment property. The main roads advised you they will be compulsory acquiring a strip of land along the front of your property. You objected to the acquisition of land because it would have brought the road X metre away from the dwelling on the property. You approached the main roads to purchase the whole property, they refused. You approached the main roads again proposing they at least buy the front half of the property, they agreed. The agreed purchase required the property to be subdivided into 3 lots. Lot x is the strip of land required for road widening purposes. Lot xx is the land adjoining the road widening strip. Lot xxx is the balance of the land being vacant land at the rear of the original block. In xx you and the main roads settled the sale for the front half of the property. In XX you incurred expenses for architectural concept plans for the building of an investment unit at the rear of the original block.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 73B | Income Tax Assessment Act 1936 Section 73BF | Income Tax Assessment Act 1936 Section 73BM | Income Tax Assessment Act 1997 Section 108-55 | Income Tax Assessment Act 1997 Section 124-70 | Income Tax Assessment Act 1997 Section 124-75 | Income Tax Assessment Act 1997 Subsection 124-75(2) | Income Tax Assessment Act 1997 Subsection 124-75(3) | Income Tax Assessment Act 1997 Subsection 124-75(3)(b) Reason for Decision | Section 124-70 of the Income Tax Assessment Act 1997 (ITAA 1997) allows capital gains tax (CGT) roll-over relief if an asset owned by the taxpayer is compulsorily acquired by an Australian government agency. | A further requirement is that the owner of the original asset must receive money or another CGT asset or both for the CGT event to be eligible for roll-over. On satisfying these conditions section 124-75 of the ITAA 1997 provides other requirements which must be satisfied if money is received for the event happening. | Under subsection 124-75(2) of the ITAA 1997, the owner of the asset must incur expenditure in acquiring another CGT asset except a depreciating asset whose decline in value is worked out under Division 40 of the ITAA 1997 or deductions which are calculated under Division 328 of the ITAA 1997. | Paragraph 12 of the Taxation Determination TD 2000/41 states: | An improvement made to an existing CGT asset does not constitute another (replacement) CGT asset for the purposes of subsection 124-75(4) unless the improvement is taken, for example by Subdivision 108-D, to be a separate CGT asset and the improvement otherwise satisfies the requirements of Subdivision 124-B. | The improvement made to an existing CGT asset is a replacement asset if two conditions are met, they are: | · The improvement is taken to be a separate CGT asset, and | · The improvement itself satisfies the requirements of subdivision 124-B of the ITAA 1997 | For CGT purposes, a building or capital improvement attached to land may be treated as a separate CGT asset under certain circumstances. Section 108-55 of the ITAA 1997 provides that erecting a building on land that was acquired on or after 20 September 1985 is a separate CGT asset if one of the balancing adjustments provisions under subdivision 40-D of the ITAA 1997, section 73B, 73BF or 73BM of the Income Tax Assessment Act 1936 applies to the building or improvement. Application to your circumstances | The requirement under subsection 124-75(2) of the ITAA 1997 is that the owner of the asset must incur expenditure in acquiring another CGT asset. | You already own the land in which you will build your investment unit, therefore the land does not satisfy the requirement under subsection 124-75(2) of the ITAA 1997. | The investment unit must first be a separate CGT asset under subdivision 108-D of the ITAA 1997 to meet the terms of acquiring another CGT asset under subsection 124-75(2) of the ITAA 1997. The investment unit does not satisfy this requirement. | Therefore; as the land and unit fails to meet all requirements listed in section 124-75 of the ITAA 1997 you are not entitled to elect the CGT roll-over relief under section 124-70 of the ITAA 1997.

Reasons for decision: Summary: Section 124-70 of the Income Tax Assessment Act 1997 (ITAA 1997) allows capital gains tax (CGT) roll-over relief if an asset owned by the taxpayer is compulsorily acquired by an Australian government agency. A further requirement is that the owner of the original asset must receive money or another CGT asset or both for the CGT event to be eligible for roll-over. On satisfying these conditions section 124-75 of the ITAA 1997 provides other requirements which must be satisfied if money is received for the event happening. Under subsection 124-75(2) of the ITAA 1997, the owner of the asset must incur expenditure in acquiring another CGT asset except a depreciating asset whose decline in value is worked out under Division 40 of the ITAA 1997 or deductions which are calculated under Division 328 of the ITAA 1997. Paragraph 12 of the Taxation Determination TD 2000/41 states: An improvement made to an existing CGT asset does not constitute another (replacement) CGT asset for the purposes of subsection 124-75(4) unless the improvement is taken, for example by Subdivision 108-D, to be a separate CGT asset and the improvement otherwise satisfies the requirements of Subdivision 124-B. The improvement made to an existing CGT asset is a replacement asset if two conditions are met, they are: · The improvement is taken to be a separate CGT asset, and · The improvement itself satisfies the requirements of subdivision 124-B of the ITAA 1997 For CGT purposes, a building or capital improvement attached to land may be treated as a separate CGT asset under certain circumstances. Section 108-55 of the ITAA 1997 provides that erecting a building on land that was acquired on or after 20 September 1985 is a separate CGT asset if one of the balancing adjustments provisions under subdivision 40-D of the ITAA 1997, section 73B, 73BF or 73BM of the Income Tax Assessment Act 1936 applies to the building or improvement. | Detailed Reasoning - Application to your circumstances: The requirement under subsection 124-75(2) of the ITAA 1997 is that the owner of the asset must incur expenditure in acquiring another CGT asset. You already own the land in which you will build your investment unit, therefore the land does not satisfy the requirement under subsection 124-75(2) of the ITAA 1997. The investment unit must first be a separate CGT asset under subdivision 108-D of the ITAA 1997 to meet the terms of acquiring another CGT asset under subsection 124-75(2) of the ITAA 1997. The investment unit does not satisfy this requirement. Therefore; as the land and unit fails to meet all requirements listed in section 124-75 of the ITAA 1997 you are not entitled to elect the CGT roll-over relief under section 124-70 of the ITAA 1997.

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