Tax Laws Amendment (2010 Measures No. 5) Act 2011 (61 of 2011)

Schedule 3   Extending CGT exemption for certain compulsory acquisitions

Income Tax Assessment Act 1997

6   At the end of Subdivision 118-B

Add:

Compulsory acquisitions of adjacent land only

118-240 What the following provisions are about

You can ignore a capital gain or capital loss you make from a compulsory acquisition (or similar arrangement) that happens only to land that is adjacent to:

(a) a dwelling that is your main residence; or

(b) a dwelling that passed to you as a beneficiary, or trustee, of a deceased estate;

to the extent that the land was used primarily for private or domestic purposes in association with the dwelling.

There is a limit on the maximum area of land covered by the exemption.

Note: The exemption may not apply in full if the dwelling:

(a) was not always a main residence; or

(b) was used for the purpose of producing assessable income.

118-245 CGT events happening only to adjacent land

Total adjacent land is 2 hectares or less

(1) A *capital gain or *capital loss you make from a *CGT event that happens in relation to land (the exempt land ), or your *ownership interest in it, is disregarded if:

(a) you are an individual; and

(b) the exempt land is all or part of a *dwelling’s *adjacent land at the time of the CGT event; and

(c) the CGT event does not happen in relation to the dwelling and does not happen in relation to your ownership interest in the dwelling; and

(d) one of the following subparagraphs applies:

(i) the dwelling was your main residence throughout all or part of your *ownership period of the dwelling;

(ii) your ownership interest in the dwelling *passed to you as a beneficiary in a deceased estate;

(iii) you own your ownership interest in the dwelling as the trustee of a deceased estate; and

(e) section 118-250 (about compulsory acquisitions of adjacent land) applies to the CGT event and the exempt land; and

(f) the sum of the following is 2 hectares or less:

(i) the area of all of the dwelling’s adjacent land at the time of the CGT event;

(ii) the area of the land immediately under the dwelling;

(iii) if this section applied to you for an earlier CGT event that involved reducing the area of the dwelling’s adjacent land at the time of that earlier CGT event - that reduction in area.

Note: You may get only a partial exemption for the gain or loss (see section 118-260).

Total adjacent land is more than 2 hectares

(2) If:

(a) apart from paragraph (1)(f), subsection (1) would apply to the gain or loss; and

(b) you choose this subsection to apply to the gain or loss;

disregard so much of the gain or loss that relates to land (the exempt land ) within the *maximum exempt area for the *CGT event and the *dwelling.

Note: You may get only a partial exemption for this portion of the gain or loss (see section 118-260).

118-250 Compulsory acquisitions of adjacent land

(1) This section applies to the *CGT event and the exempt land if the CGT event involves:

(a) the compulsory *acquisition of the exempt land by:

(i) an *Australian government agency; or

(ii) an entity under a power conferred by an *Australian law; or

(b) you *disposing of the exempt land to an entity in circumstances meeting all of these conditions:

(i) the disposal takes place after a notice was served on you by or on behalf of the entity;

(ii) the notice invited you to negotiate with the entity with a view to the entity acquiring the exempt land by agreement;

(iii) the notice informed you that if the negotiations were unsuccessful, the exempt land would be compulsorily acquired by the entity;

(iv) the compulsory acquisition would have been under a power of compulsory acquisition conferred by an Australian law.

Note: For paragraph (b), the entity may be an Australian government agency.

(2) This section applies to the *CGT event and the exempt land if the CGT event involves:

(a) your *ownership interest in the exempt land being compulsorily cancelled (however described) or varied (however described) by:

(i) an *Australian government agency; or

(ii) an entity under a power conferred by an *Australian law; or

(b) you surrendering (however described) or varying (however described) your ownership interest in the exempt land in circumstances meeting all of these conditions:

(i) the surrender or variation takes place after a notice was served on you by or on behalf of an entity;

(ii) the notice invited you to negotiate with the entity with a view to you agreeing to surrender or vary your ownership interest;

(iii) the notice informed you that if the negotiations were unsuccessful, your ownership interest would be compulsorily cancelled, or varied, under a power conferred by an Australian law.

Note: For paragraph (b), the entity may be an Australian government agency.

(3) This section applies to the *CGT event and the exempt land if the CGT event involves:

(a) an interest or right in or relating to the exempt land being compulsorily conferred on:

(i) an *Australian government agency; or

(ii) an entity under a power conferred by an *Australian law; or

(b) you conferring on an entity an interest or right in or relating to the exempt land in circumstances meeting all of these conditions:

(i) the conferral takes place after a notice was served on you by or on behalf of an entity;

(ii) the notice invited you to negotiate with the entity with a view to you agreeing to confer an interest or right in or relating to the exempt land;

(iii) the notice informed you that if the negotiations were unsuccessful, an interest or right in or relating to the exempt land would be compulsorily conferred on the entity under a power conferred by an Australian law.

Note: For paragraph (b), the entity may be an Australian government agency.

(4) This section applies to the *CGT event and the exempt land if:

(a) your *ownership interest in the exempt land:

(i) was conferred on you by an *Australian government agency; and

(ii) had a limited, but renewable, period of operation; and

(b) the CGT event involves that ownership interest not being renewed by that agency.

118-255 Maximum exempt area

Your maximum exempt area for the *CGT event and the *dwelling is 2 hectares less the amount worked out as follows:

Method statement

Step 1. Identify each earlier *CGT event (if any) that:

(a) happened in relation to land that was part of the *dwelling’s *adjacent land at the time of the earlier CGT event, or happened in relation to your *ownership interest in that land at that time; and

(b) resulted in you losing rights to the substantial use and enjoyment of that land either completely or for at least 10 years;

for which you made a *capital gain or *capital loss that was wholly or partly disregarded because of the application of subsection 118-245(2).

Step 2. For each earlier *CGT event covered by step 1, work out the area of the exempt land for that application of subsection 118-245(2).

Step 3. Add the results from step 2 to the area of the land immediately under the *dwelling.

118-260 Partial exemption rules

(1) If section 118-245 applies to a *CGT event, the amount of the *capital gain or *capital loss that you would have made apart from this section from the CGT event is increased by an amount that is reasonable having regard to the following:

(a) the extent that the *dwelling was not a main residence for the relevant period;

(b) the extent that the dwelling was used for the *purpose of producing assessable income during the relevant period.

(2) In determining what is a reasonable increase, have regard to the principles in this Subdivision applicable to *CGT events happening in relation to a *dwelling or your *ownership interest in it.

118-265 Extension to adjacent structures

Sections 118-245 to 118-260 (with appropriate modifications) apply to an *adjacent structure of a flat or home unit in a corresponding way to the way they apply to a *dwelling’s *adjacent land.