Private ruling: CGT - disposal
Published: October 2014
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will you be liable for capital gains tax (CGT) on sale of your inherited property? | A1: Yes.

Relevant facts and circumstances: You inherited a property. The property was originally owned by a relative. The land was held under leasehold. Other land in the area was originally converted to freehold title pre-CGT. Your relative declined the offer at the time. The Lands Department contacted you offering you the opportunity to convert your land freehold. In 200X the freehold conversion was completed.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 , | Income Tax Assessment Act 1997 Section 104-10, | Income Tax Assessment Act 1997 Subdivision 124-J and | Income Tax Assessment Act 1997 Subsection 124-10(2).

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). In this case, as the freehold title on the land was acquired as a result of replacement asset rollover, the date of acquisition of the freehold is taken to be the date you acquired the property, the date of death of your relative. Upon sale of your interest in the freehold title, CGT event A1 will occur (section 104-10 of the ITAA 1997).