Private ruling: Capital gains tax (CGT) replacement asset roll-over
Date of advice: 24 April 2018
Published: July 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you eligible to reduce the capital gain made from the disposal of Property A under Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Are you required to reduce the calculated expenditure of the replacement asset (being Property B) under section 124-85 of the ITAA 1997? | A2: Yes. | Q3: Are you required to reduce the calculated expenditure of the replacement asset (being Property C) under section 124-85 of the ITAA 1997? | A3: Yes.

Relevant facts and circumstances: You purchased Property A in 20XX. You had been using this property as an investment property. You were issued a notice in 20XX that acquisition was proposed for Property A by the Entity. The letter detailed that the acquisition was to be made after an external market value appraisal had been completed. You disposed of Property A to the Entity during the 20XX income year without contract. You received two payments for the acquisition of the property, being $XXXX and $XXXX. You also received a reimbursement your share of the stamp duty on the purchase of Property B which was $XXXX. You have calculated that a gross capital gain of $XXXX was made from the acquisition of Property A. In 20XX, you and your spouse purchased Property B as tenants in common for use as an investment property. The purchase price for Property B was $XXXX which included $XXXX as a payment for stamp duty. You purchased an interest in Property B and your spouse purchased an interest. Your interest of the purchase price totalled $XXXX and your share of the stamp duty payable was $XXXX. Since the purchase of Property B, you and your spouse have separated. In 20XX, your spouse has moved in to Property B and commenced paying you $XXXX per month for exclusive possession of your share of Property B. This figure was calculated on what you considered to be the market value of $XXXX per month for rent of the property multiplied by your ownership percentage. In 20XX you purchased Property C in your sole name for use as an investment property at a cost of $XXXX.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 124-70 | Income Tax Assessment Act 1997 section 124-75 | Income Tax Assessment Act 1997 section 124-85

Reasons for decision: Summary: Section 124-70 of the ITAA 1997 provides that you may be able to choose a roll-over if a CGT asset that you own is compulsorily acquired by an Australian Government agency. Section 124-75 of the ITAA 1997 provides that if you receive money for the event happening, you can only choose a roll-over if the other requirements are satisfied. You must: ● incur expenditure for acquiring another CGT asset; ● incur some of the expenditure no earlier than one year before the event happens or no later than one year after the end of the income year in which the event happens; ● use the replacement asset (for a reasonable time after you acquire it) for the same or similar purpose to the purpose for which the original asset was used just before the event happened. Under section 104-10 of the ITAA 1997, the time for a CGT event A1 to have occurred when the contract for disposal is entered into or if there is no contract, when the change in ownership occurs. In your circumstances, you received a notice that the State wished to acquire your property. You disposed of Property A during the 20XX income year. You then incurred expenditure to purchase Property B in the 20XX income year, which was in the same income year as acquisition. You incurred expenditure to purchase Property C in the 20XX income year, which was less than 12 months after the end of the 20XX income year. You have since been using Properties B and C for the purpose of investment. Section 124-85 of the ITAA 1997 provides the consequences of receiving money for an asset being compulsorily acquired. If the situation is that the money you have received exceeds the expenditure you incurred to acquire the replacement asset; and the capital gain is more than the excess, the consequence is that the gain is reduced to the amount by which the money exceeds the expenditure and the expenditure is reduced by the amount that by which the gain (before reduction) is more that the excess. In your circumstances, the money that you have received exceeds the amount of expenditure incurred to acquire Property B. The consequence where the gain is more than the excess is that the gain is reduced by the amount of the excess; and the expenditure is reduced by the amount by which the gain (before reduction) is more than the excess. Section 124-85 of the ITAA 1997 also provides for the situation where the money does not exceed the expenditure incurred. The consequence is then that the gain is disregarded and the expenditure is reduced by the amount of the gain. In your circumstances, the remaining gain that you have calculated will not exceed the cost to acquire Property C, therefore the gain is disregarded and the expenditure incurred to acquire Property C is reduced by the amount of the gain.