Tax Laws Amendment (2010 Measures No. 4) Act 2010 (136 of 2010)

Schedule 2 CGT treatment of water entitlements and termination fees

Part 1 CGT roll-over for water entitlements

Income Tax Assessment Act 1997

6 At the end of Division 124

Add:

Subdivision 124-R - Water entitlements

Guide to Subdivision 124-R

124-1100 What this Subdivision is about

There is a roll-over if a CGT event happens to you because of something occurring in relation to one or more water entitlements. You do not need to own water entitlements for the event to happen to you.

Table of sections

Replacement case

124-1105 Replacement water entitlements roll-over

124-1110 Roll-over consequences - capital gain or loss disregarded

124-1115 Roll-over consequences - partial roll-over

124-1120 Roll-over consequences - all original entitlements post-CGT

124-1125 Roll-over consequences - all original entitlements pre-CGT

124-1130 Roll-over consequences - some original entitlements pre-CGT, others post-CGT

Reduction case

124-1135 Reduction in water entitlements roll-over

124-1140 Roll-over consequences - capital gain or loss disregarded

124-1145 Roll-over consequences - all original entitlements post-CGT

124-1150 Roll-over consequences - some original entitlements pre-CGT, others post-CGT

Variation to CGT asset case

124-1155 Roll-over for variation to CGT asset

124-1160 Roll-over consequences

124-1165 Roll-over consequences - partial roll-over

Replacement case

124-1105 Replacement water entitlements roll-over

Automatic roll-over for single water entitlements

(1) There is a roll-over if:

(a) your ownership of a *water entitlement (the original entitlement ) ends, resulting in a *CGT event happening; and

(b) as a result of your ownership of the original entitlement ending, you *acquire one or more water entitlements (each of which is a new entitlement ); and

(c) if you are a foreign resident just before your ownership of the original entitlement ends, or you are the trustee of a trust that is a *foreign trust for CGT purposes for the income year in which your ownership of the original entitlement ends:

(i) the original entitlement was *taxable Australian property just before you stopped owning it; and

(ii) if there is only one new entitlement - the new entitlement is taxable Australian property just after you acquire it; and

(iii) if there is more than one new entitlement - each new entitlement is taxable Australian property just after you acquire it; and

(d) you have not chosen a roll-over in relation to the original entitlement under subsection (2).

Elective roll-over for bundled water entitlements

(2) There is a roll-over if:

(a) your ownership of more than one *water entitlement (each of which is an original entitlement ) ends, resulting in a *CGT event happening; and

(b) as a result of your ownership of the original entitlements ending, you *acquire one or more water entitlements (each of which is a new entitlement ); and

(c) if you are a foreign resident just before your ownership of the original entitlements ends, or you are the trustee of a trust that is a *foreign trust for CGT purposes for the income year in which your ownership of the original entitlements ends:

(i) each original entitlement was *taxable Australian property just before you stopped owning it; and

(ii) if there is only one new entitlement - the new entitlement is taxable Australian property just after you acquire it; and

(iii) if there is more than one new entitlement - each new entitlement is taxable Australian property just after you acquire it; and

(d) you choose to obtain the roll-over.

Note: Section 103-25 tells you when the choice must be made.

No roll-over if Subdivision 124-C applies

(3) However, there is no roll-over in relation to a *water entitlement under this section if there is a roll-over in relation to the water entitlement under Subdivision 124-C (statutory licences).

Meaning of water entitlement

(4) A water entitlement is a legal or equitable right that an entity owns that relates to water, including a right to:

(a) receive water; or

(b) take water from a water resource; or

(d) deliver water;

and includes a right that must be owned by the entity in order to own a right covered by paragraph (a), (b), (c) or (d).

Example: Philip owns a share in Big Pump Irrigation Ltd. The share provides Philip with the right to receive dividends, to participate in the running of the company and to have a separate contractual agreement with Big Pump Irrigation Ltd for the delivery of 1 megalitre of water. Philip has such an agreement. Philip's agreement is a water entitlement . Philip's share is also a water entitlement because he must own the share in order to have a contractual arrangement with Big Pump Irrigation Ltd for the delivery of water.

124-1110 Roll-over consequences - capital gain or loss disregarded

Disregard a *capital gain or *capital loss you make from each original entitlement that qualifies for a roll-over.

124-1115 Roll-over consequences - partial roll-over

(1) You can obtain only a partial roll-over in relation to an original entitlement if the *capital proceeds for that entitlement includes something (the ineligible proceeds ) other than a new entitlement or new entitlements. There is no roll-over for that part (the ineligible part ) of the entitlement for which you received the ineligible proceeds.

Note: If the roll-over is under subsection 124-1105(2), some or all of the original entitlements may each have an ineligible part.

(2) The *cost base of the ineligible part is that part of the cost base of the original entitlement as is reasonably attributable to the ineligible part.

(3) The *reduced cost base of the ineligible part is worked out similarly.

(4) In working out what is reasonably attributable to the ineligible part for the purposes of subsections (2) and (3), have regard to the *market value of the new entitlement relative to the market value of the ineligible proceeds.

(5) If the roll-over is under subsection 124-1105(2), for the purposes of sections 124-1120 and 124-1130, for each original entitlement that has an ineligible part:

(a) reduce the *cost base of that entitlement (just before you stopped owning it) by so much of that cost base as is attributable to that ineligible part; and

(b) reduce the *reduced cost base of that entitlement similarly.

124-1120 Roll-over consequences - all original entitlements post-CGT

(1) In a situation covered by subsection 124-1105(1), if you *acquired the original entitlement on or after 20 September 1985, the first element of the *cost base of the new entitlement (or of each of the new entitlements) is such amount as is reasonable having regard to:

(a) the cost base and *market value of the original entitlement; and

(b) the number and market value of the new entitlements; and

(2) In a situation covered by subsection 124-1105(2), if you *acquired the original entitlements on or after 20 September 1985, the first element of the *cost base of the new entitlement (or of each of the new entitlements) is such amount as is reasonable having regard to:

(a) the total of the cost bases of all the original entitlements; and

(b) the number and *market value of the original entitlements; and

(d) any amount you paid to get the new entitlements (which can include giving property: see section 103-5).

(3) In the situation covered by subsection 124-1105(1) or (2), the first element of the *reduced cost base of the new entitlement (or of each of the new entitlements) is worked out similarly.

(4) For the purposes of paragraphs (1)(b) and (2)(c), the *market value of the new entitlements is their market value at the time you *acquired them.

124-1125 Roll-over consequences - all original entitlements pre-CGT

(1) In the situation covered by subsection 124-1105(1), if you *acquired the original entitlement before 20 September 1985, you are taken to have acquired the new entitlement (or all of the new entitlements) before that day.

(2) In the situation covered by subsection 124-1105(2), if you *acquired the original entitlements before 20 September 1985, you are taken to have acquired the new entitlement (or all of the new entitlements) before that day.

124-1130 Roll-over consequences - some original entitlements pre-CGT, others post-CGT

(1) This section applies if:

(a) the roll-over is under subsection 124-1105(2); and

(b) you *acquired one or more of the original entitlements before 20 September 1985; and

(2) You are taken to have *acquired so many of your new entitlements before 20 September 1985 as is reasonable, having regard to:

(a) the number and *market value of your original entitlements; and

(b) the number and market value of your new entitlements.

(3) The first element of the *cost base of each of your new entitlements that are not taken by subsection (2) to have been *acquired before 20 September 1985 (your post-CGT entitlements ) is such amount as is reasonable having regard to:

(a) the total of the cost bases of the original entitlements you acquired on or after 20 September 1985; and

(b) the number and *market value of your post-CGT entitlements; and

(4) The reduced cost base of each of your post-CGT entitlements is worked out similarly.

Reduction case

124-1135 Reduction in water entitlements roll-over

There is a roll-over if:

(a) you own more than one *water entitlement; and

(b) under an *arrangement:

(i) your ownership of one or more of the water entitlements (each of which is an original entitlement ) ends, resulting in a *CGT event happening; and

(ii) you do not receive anything for the original entitlement or entitlements; and

(iii) you retain one or more of your original entitlements (the retained entitlements ); and

(c) the total of the *market values of all of the retained entitlements immediately after the CGT event happens is substantially the same as the total of the market values of all of the original entitlements immediately before the CGT event happened.

124-1140 Roll-over consequences - capital gain or loss disregarded

A *capital gain or *capital loss you make from your ownership of the original entitlements ending is disregarded.

124-1145 Roll-over consequences - all original entitlements post-CGT

(1) This section applies if you *acquired the original entitlement (or all of the original entitlements) on or after 20 September 1985.

(2) The first element of the *cost base of the retained entitlement (or of each of the retained entitlements) is such amount as is reasonable having regard to:

(a) the total of the cost bases of all the original entitlements; and

(b) the number and *market value of the original entitlements; and

(3) The first element of the *reduced cost base of the retained entitlements is worked out similarly.

(4) For the purposes of paragraph (2)(c), the *market value of the retained entitlements is their market value just after the *CGT event referred to in section 124-1135 happens.

124-1150 Roll-over consequences - some original entitlements pre-CGT, others post-CGT

(1) This section applies if:

(a) you *acquired one or more of the original entitlements before 20 September 1985; and

(b) you acquired one or more of the original entitlements on or after that day.

(2) You are taken to have *acquired so many of your retained entitlements before 20 September 1985 as is reasonable, having regard to:

(a) the number and *market value of your original entitlements; and

(b) the number and market value of your retained entitlements.

(3) The first element of the *cost base of each of your retained entitlements that are not taken by subsection (2) to have been *acquired before 20 September 1985 (your post-CGT entitlements ) is such amount as is reasonable having regard to:

(a) the total of the cost bases of the original entitlements you acquired on or after 20 September 1985; and

(b) the number and *market value of the your post-CGT entitlements.

(4) The reduced cost base of each of your post-CGT entitlements is worked out similarly.

Variation to CGT asset case

124-1155 Roll-over for variation to CGT asset

There is a roll-over if:

(a) a *CGT event happens to a *CGT asset that you own; and

(b) the CGT event happens as a direct result of the circumstances that gave rise to a roll-over under section 124-1105; and

124-1160 Roll-over consequences

A *capital gain or *capital loss you make from the *CGT event is disregarded.

124-1165 Roll-over consequences - partial roll-over

(1) You can obtain only a partial roll-over in relation to a *CGT asset if the *capital proceeds for that asset includes something (the ineligible proceeds ) other than your retained asset. There is no roll-over for that part (the ineligible part ) of the asset for which you received the ineligible proceeds.

(2) The *cost base of the ineligible part is that part of the cost base of the *CGT asset as is reasonably attributable to the ineligible part.

(3) The *reduced cost base of the ineligible part is worked out similarly.

(4) In working out what is reasonably attributable to the ineligible part for the purposes of subsections (2) and (3), have regard to the *market value of the retained asset relative to the market value of the ineligible proceeds.

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