Private ruling: Capital gains tax
Published: March 2014
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017

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 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: Detailed Reasoning - Conversion from Crown lease to freehold: 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 prior to 20 September 1985. Therefore the land is a pre CGT asset and is not subject to capital gains tax.

Relevant facts: Your relative entered into a crown lease for 99 years prior to 20 September 1985. | You and your siblings took over the crown lease prior to 20 September 1985. | The land was offered to you and your siblings as freehold after 20 September 1985. | After 20 September 1985 you and your siblings entered into an agreement to purchase the property as freehold. | The freehold title was issued after 20 September 1985. | You are considering selling the property.