Private ruling: Capital gains tax
Published: January 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1983

Ruling: Q1: Does the conversion of a Crown lease to freehold constitute a capital gains tax event? | A1: Yes. | Q2: Where the conversion of a special Crown lease to freehold constitutes a capital gains tax event is the rulee entitled to capital gains tax roll-over relief under section 124-575 of the ITAA 1997? | A2: Yes. | Q3: Are you subject to capital gains tax when the freehold property is sold? | A3: 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. You purchased a lease over Crown land prior to 20 September 1985. The lease was converted to a freehold interest after 20 September 1985. You signed a contract to sell the property on 1 October 2013. The contract settled on 31 October 2013. No significant improvements have been made to the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20. | Income Tax Assessment Act 1997 Subsection 108-55(2). | Income Tax Assessment Act 1997 Subsection 124-10(2). | Income Tax Assessment Act 1997 Subsection 124-10(4). | Income Tax Assessment Act 1997 Section 124-575. | Income Tax Assessment Act 1997 Section 124-580. | Income Tax Assessment Act 1997 Section 104-25.

Reasons for decision: Summary: A capital gain or capital loss is made as a result of a capital gains tax (CGT) event happening to a CGT asset. When a Crown lease is converted to a freehold title, a CGT event happens. You surrender a right (the Crown lease) and acquire a new right (the freehold title) as a replacement asset. A replacement asset roll-over is available on the conversion of a Crown lease to a freehold title. The roll-over is automatic and any capital gain or capital loss made from the original asset is disregarded. Where the original Crown lease was acquired before 20 September 1985, the date of acquisition of the replacement asset (freehold) is taken to be the date that the original Crown lease was acquired. In your case, you acquired the crown lease prior to 20 September 1985. The crown lease was converted into a freehold after 20 September 1985. Therefore, in accordance with the replacement asset roll-over, you are taken to have acquired the freehold on the date that the Crown lease was originally acquired before 20 September 1985. Therefore the property is a pre CGT asset and was not subject to capital gains tax when it was sold.