Private ruling: Capital gains tax - easement
Published: June 2012
Ruling period: Year ended 30 June 2012.
Date scheme commenced: 1 July 2011.

Ruling: Q1: Will you make a capital gain as a result of the easement payment you received? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 104-10 | Income Tax Assessment Act 1997 - Section 108-5

Reasons for decision: Summary: Easements which can be created by compulsory acquisition are considered differently to general easements. | Detailed Reasoning - Taxation Ruling TR 97/3 at paragraph 4 states:: Compensation in respect of an easement created by statute in favour of a public authority cannot be said to have been received for the grant of the easement. The Land Acquisition (Just Terms Compensation) Act 1991 (NSW) and similar Acts in other jurisdictions enable public authorities to take land or an interest in land (including an easement) for specified purposes and confer on the affected landowner a right to compensation. In these circumstances, the landowner cannot be said to have created an asset as required for subsection 160M(6) of the Act to apply. The easement is created by operation of the relevant statute and is vested in the public authority. This constitutes a compulsory acquisition of the easement. Compensation received by a landowner is accepted as consideration received for the part disposal of the underlying asset (the land). TR 97/3 paragraph 8. Taxation Ruling TR 97/3, at paragraphs 9 and 10, provides the Commissioners view on easements granted to a public authority, which has the statutory power to compulsorily acquire the easement, but acquires the easement by agreement with the landowner. As the public authority has the power to compulsorily acquire the easement, if it chooses, the amount received takes on the same character as compensation for a compulsorily acquired easement. It is payment for a part disposal of land. Therefore capital gains tax (CGT) event A1 occurs, disposal of an asset, under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997). Land, or part of the land, is a CGT asset under section 108-5 of the ITAA 1997. In this case you received an amount of money for easement on your main residence. The easement was not compulsory acquired by the company, however they have the power to compulsory acquire easements under the Acquisition of Land Act 1967. The payment received will be consideration for the part disposal of the land and CGT event A1 will occur. You received an amount of money from the company and the market value of the land at the time of the creation of the easement was the same amount. Therefore you will make no capital gain as a result of the easement payment you received.

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 and your partner received an amount of money for easement on your main residence. | The company can compulsorily acquire easements under the Acquisition of Land Act 1967. | The market value of the land based on the valuation done by the company was the same as the amount of money received for the easement payment.