Private ruling: Mining Compensation
Published: March 2014
Ruling period: Income year ended 30 June 2011 | Income year ended 30 June 2012 | Income year ended 30 June 2013 | Income year ended 30 June 2014
Date scheme commenced: 11 October 2010

Ruling: Q1: Will the compensation payment under the Conduct and Compensation Agreement be assessable as income or a capital gain? | A1: No | Q2: Will the payments under the Conduct and Compensation Agreement reduce the cost base of the relevant property for any future capital gain? | A2: Yes

Relevant facts and circumstances: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: • The application for private ruling • The Conduct and Compensation Agreement • Landowner Payment Statement You are the landowner of a property and primarily carry on the business of livestock farming You have entered into a compensation agreement under the Petroleum and Gas (Production and Safety) Act 2004 and the Petroleum Act 1923 with a coal seam gas mining company to compensate you for the construction of monitoring bores on your land. The contract details the Agreed Authorised Activities relevant to the damages caused. Clause 7 of the Conduct and Compensation Agreements provides that you have been compensated for the following heads of damage: • Loss of use • All impacts of noise, light dust, odour, vibration, vehicular movements and loss of amenity generally.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Subsection 110-55(6) Further issues for you to consider | Anti-avoidance rules | NA

Reasons for decision: Summary: Taxation Ruling TR 95/35 provides the Commissioner's view on the taxation implications of compensation receipts. Accordingly to determine the tax treatment of a compensation payment a "look through" approach is adopted to identify the relevant asset to which the compensation relates. Having regard to your full circumstances, it is accepted that you have been compensated primarily for the loss of use of an underlying asset being the property. Consequently the compensation payments will not be assessable income under section 6-5 as the payments are of a capital nature. Consequently in this instance where there is no disposal of the underlying asset the receipts will instead amount to a reduction of the cost base of the relevant asset under section 110-55(6) as a recoupment.

Issue 1: Mining Compensation Payments