The Australian Taxation Office (ATO) has issued Taxation Determination (TD) 2018/15 on whether a capital gains tax (CGT) event D1 happens if a taxpayer grants an easement, profit à prendre, or licence over an asset. The ruling provided in TD 2018/15 answers as follows:
Yes. CGT event D1 (about the creation of rights) rather than CGT event A1 (about the disposal of an asset) happens if a taxpayer grants an easement, profit à prendre, or licence over an asset. Consequently:
- no part of the cost base of the asset can be taken into account in working out the amount of any capital gain or capital loss that arises from the grant;
- any capital gain or capital loss from the grant cannot be disregarded merely because the asset was acquired prior to 20 September 1985;
- any capital gain from the grant is not a discount capital gain; and
- no exemption is available under Division 118 if the grant relates to a main residence because CGT event D1 is not one of the events listed in subsection 118-110(2) that is relevant to that exemption.
In some cases, it may be difficult to determine whether an agreement involves a profit à prendre or a sale of goods. The category into which any particular arrangement falls will depend on the intentions of the parties determined from the terms of the agreement and other relevant circumstances.
Note – CGT Event D1 is one of several CGT events for which a capital gain or loss can be made. Certain exceptions are provided, including in relation to pre-CGT assets (those acquired before 20 September 1985) in certain cases.