Private ruling: Pre CGT Property
Published: December 2014
Ruling period: Income year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will you be liable for capital gains tax (CGT) on sale of your inherited property? | A1: No

Relevant facts and circumstances: In 19xx your grandparent was granted a crown land perpetual lease. In 19xx the perpetual lease was convert into a perpetual Lease Grant bring it under Torrens Title. On the x following the death of your relative you along with your relatives became owners of the property as tenants in common (equal shares). In x, following an earlier offer from the state Department of Primary Industries to convert the perpetual lease grant to freehold title, you and your two relatives purchased the land for $x. In x, you and your two relatives sold the property.

Relevant legislative provisions: Income Tax Assessment act 1997 section 104-10 | Income Tax Assessment Act 1997 section 124-10 | Income Tax Assessment Act 1997 subdivision 124-J

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can make a capital gain or loss if and only if a CGT event occurs. The most common CGT event, CGT event A1, occurs when you dispose of a CGT asset to someone else, for example, if you sell a property. When a Crown Lease is converted to a freehold title, a CGT event will occur. You dispose of a right (the Crown Lease) and acquire a new right (the freehold title) as a replacement asset. On the conversion of a Crown Lease to a freehold title, replacement asset rollover in accordance with subdivision 124-J of the ITAA 1997 will occur. The rollover is automatic and any capital gain or capital loss made from the original asset is disregarded (subsection 124-10(2) of the ITAA 1997). Subsection 124-10(4) of the ITAA 1997 provides that if the original asset was acquired before 20 September 1985, you are taken to have acquired the new asset before that date. Consequently as you inherited your share of the perpetual lease grant prior to 20 September 1985, the capital gain on the sale of the converted freehold interest will be disregarded under section 104-10(5) of the ITAA 1997.