Private ruling: Capital gains tax - real property - C2 event - capital proceeds
Published: August 2012
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the payment received by you be considered capital proceeds for capital gains tax (CGT) purposes? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Section 10-5 | Income Tax Assessment Act 1997 Subsection 104-25 (1) | Income Tax Assessment Act 1997 Subsection 108- 5 (1) | Income Tax Assessment Act 1997 Section 116- 20

Reasons for decision: Summary: In capital gains tax (CGT) an asset can be a tangible item, such as property, or an intangible item, such as a right. In your case, your CGT asset was the call option to acquire the unit. The call option conveys the right acquire the underlying asset, being the unit. In the situation that the option was exercised, then you would have become the owner of the asset. In your situation, section 104-25 of the Income Tax Assessment Act 1997 (ITAA 1997) is relevant as it deals with CGT event C2 which relates to cancellation, surrender and similar endings. Subparagraph 104-25(1)(d) of the ITAA 1997 states, in part, that CGT event C2 happens if your ownership of an intangible CGT asset ends by the asset being surrendered or forfeited. Accordingly, the relevant event is the right of action arising at law or in equity and vesting in you on the occurrence of any breach of contract. The right to sue attaches to the underlying asset, being the call option. It is acquired at the time of the compensable wrong and is disposed of when it is satisfied, surrendered, released or discharged. The amount paid to you when that right ends is the capital proceeds.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You exchanged a contract for sale of property. | The parties to the contract are now in dispute. | You have supplied a number of documents which forms part of and should be read in conjunction with this private ruling: | We have obtained the following information from these documents: | The purchaser paid a sum of money for the property. | Under this contract the purchaser also provided the vendor with an option to purchase a unit in the development at an agreed price. | In the event that the purchaser does not complete the development project, the purchaser agrees that the purchase price of the property shall increase by an amount. | The vendor has accepted an offer of settlement from the purchaser in satisfaction of the vendor's claim.