ATO Interpretative Decision
ATO ID 2004/172
Income Tax
Capital gains tax: CGT event - investor selling a carbon sequestration rightFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does CGT event A1, under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997), happen when the investor sells a carbon sequestration right, as defined in section 87A of the Conveyancing Act 1919 (NSW) (the Conveyancing Act), before the end of the contract?
Decision
Yes. CGT event A1, under section 104-10 of the ITAA 1997, happens when the investor sells a carbon sequestration right, as defined in section 87A of the Conveyancing Act, before the end of the contract.
Facts
An investor enters into a contract with a New South Wales landowner for the acquisition of a carbon sequestration right, as defined in section 87A of the Conveyancing Act. The term of the contract is 20 years. During the fifth year of the contract, the investor sells the right to another investor.
Reasons for Decision
Subsection 104-10(1) of the ITAA 1997 states that CGT event A1 happens if you dispose of a CGT asset. Under subsection 104-10(2) of the ITAA 1997, you dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law.
A carbon sequestration right, as defined under section 87A of the Conveyancing Act, is a legal right that satisfies the definition of 'CGT asset' in subsection 108-5(1) of the ITAA 1997.
Under subsection 960-100(1) of the ITAA 1997, an entity is defined as any of the following:
- (a)
- an individual;
- (b)
- a body corporate;
- (c)
- a body politic;
- (d)
- a partnership;
- (e)
- any other unincorporated association or body of persons;
- (f)
- a trust;
- (g)
- a superannuation fund.
A carbon sequestration right is defined in section 87A of the Conveyancing Act as follows:
carbon sequestration right
in relation to land, means a right conferred on a person by agreement or otherwise to the legal, commercial or other benefit (whether present or future) of carbon sequestration by any existing or future tree or forest on the land after 1990.
The selling of the right to another entity before the end of the contract constitutes a change of ownership of the asset, and hence a disposal of a CGT asset under subsection 104-10(1) of the ITAA 1997.
Date of decision: 12 February 2004Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
section 104-10
subsection 104-10(1)
subsection 104-10(2)
subsection 108-5(1)
section 960-100
section 87A Related ATO Interpretative Decisions
ATO ID 2004/163
ATO ID 2004/171
Keywords
Capital gains tax
CGT assets
CGT event A1-disposal of a CGT asset
CGT events
Date reviewed: 24 June 2014
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 12 February 2004 | Original statement |
| 5 May 2017 | Archived |