Compulsory Land Acquisition & Tax?

Hello,

Just looking for some information regarding compulsory land acquisitions...
My folks have forcibly had to sell a small easement/parcel of a rural property over in Victoria back to the local government body (I believe) Coliban Water.

What we are trying to find out is if they will have to pay tax/declare on the compensation that they have received for this parcel of land?
They have already called the ATO who were unsure.

Cheers,

Jamie
 
Jamie - there is a special CGT event that applies to this. Unfortunately most accountants will charge you to research it as they dont know property backwards.

Good news. Compulsory acquisition isnt always taxable. Its ofter deferred and in special ways. The special nature of the compulsory acquisition needs some basic advice.

There is also a tax ruling on compensation payments.

I never quite understand why you call the ATO. It is staffed by 85% of people who are unqualified and who are paid a salary to COLLECT tax. Their job is not to assist you to reduce tax. Their call staff include non-residents in foreign countries.
 
People call the ATO as it is who they fear and whom will be taking money from them if they get it wrong. Being the taxation department you'd assume they would know what they are talking about (even though its not generally the case)
 
Contact a valuer experienced in compulsory acquisition, solicitor and accountant. As the law around compulsory acquisition are dependent upon whether it is a state or federal act the heads of compensation differ markedly.

How far down the track is the acquisition?

The general position of the act is that the owners affected are in no worse position than if the event had not occurred. This will depend upon your parents' circumstances - there is plenty of case law around these matters.
 
Contact a valuer experienced in compulsory acquisition, solicitor and accountant. As the law around compulsory acquisition are dependent upon whether it is a state or federal act the heads of compensation differ markedly.

How far down the track is the acquisition?

The general position of the act is that the owners affected are in no worse position than if the event had not occurred. This will depend upon your parents' circumstances - there is plenty of case law around these matters.

The acquisition actually occured last week and the value was between 20-30k.

Thanks for your response.
 
Please don't spout dangerous info here

As a feminist I dispute this. Can you cite any legislation or caselaw to back up your claim?

Compulsory acquisition is a horrible experience I would not wish on anyone. I speak from personal experience. I have been there.

Unless it has changed in the last 5 years, capital gains are tax free when there is a compulsory acquisition of one's PPoR or part thereof. Call the ATO for confirmation if you don't believe me.

The Law is a bit of an a$$. If you come to a voluntary agreement with the acquiring authority BEFORE the land is compulsorily acquired, then you may well have to pay CGT. It's best to wait til the land is formally taken before getting into negotiations.
 
Compulsory acquisition is a horrible experience I would not wish on anyone. I speak from personal experience. I have been there.

Unless it has changed in the last 5 years, capital gains are tax free when there is a compulsory acquisition of one's PPoR or part thereof. Call the ATO for confirmation if you don't believe me.

The Law is a bit of an a$$. If you come to a voluntary agreement with the acquiring authority BEFORE the land is compulsorily acquired, then you may well have to pay CGT. It's best to wait til the land is formally taken before getting into negotiations.

Sale of a PPOR is generally exempt from CGT anyway.
 
The Law is a bit of an a$$. If you come to a voluntary agreement with the acquiring authority BEFORE the land is compulsorily acquired, then you may well have to pay CGT. It's best to wait til the land is formally taken before getting into negotiations.

You can access the CGT rollover with a voluntary agreement.

The council will normally invite the owner to negotiate, but also inform them that if this fails then they may exercise a power of compulsory acquisition.
 
Unless it has changed in the last 5 years, capital gains are tax free when there is a compulsory acquisition of one's PPoR or part thereof. Call the ATO for confirmation if you don't believe me.

It is not tax-free unless it was exempt under some other provision such as a main residence.

However there may be a deferral using a CGT rollover election.
 
But with compulsory acquisition CGT rollover, your new property you acquire of value up to 120% of the old one will also be pre-CGT.

Useful information for me here. (To the OP: sorry to digress or overcomplicate.)

Rob, in order to qualify, what is the time limit between the compulsory acquisition and having to buy another property?
 
I think the only thing worse than compulsory acquisition would be living next door to a property in a city compulsorily acquired... you'll likely lose property value, be exposed to problems they had to acquire the other houses for, and get nothing.
 
For CGT rollover relief

The main conditions that must be met are:

The asset is compulsorily acquired by a government agency;
The client receives money or another asset as compensation;
The client must incur expenditure on acquiring another CGT asset;
Some of the expenditure must be incurred within 1 year before and 1 year after the event occurs;
and
The replacement asset must be used for a similar purpose as the original asset for a reasonable time after it is acquired.

http://law.ato.gov.au/atolaw/view.htm?docid=PAC/19970038/124-70

TD 2000/44 discusses the meaning of a "reasonable time"
 
I assisted my parents on a compulsory acquisition on their land in Sydney North West... The matter gone on for 2 yrs and end up in Land and Environmental Court. It was completed this year. Compensation was in the $mils, and legal, valuation, barrister fees where $300k which the acquisition party had to pay.
There were 2 separate claims: the land and business (as agriculture business was conducted on the farm).
The land compensation is not liable for tax, however the business compensation is liable. This was understanding from our legal and accountant
 
Which way one is more tax effective

Heya all,

Please help me out about the taxation aspect of CGT =

Details (simplify the date for ease of calculation) :

1- Purchase property : 1 Jan 2010 and moved in the stay in there about 10 months as Principle Place of Resident for price of 400k

2- Moved out on : 1 Oct 2010 and rented out the house

3- 1 Jan 2015 : Entered into Agreement for of that house for Acquisition with RMS and received compensation of 900k

Known FACTS :
A. The property would be CGT exempted due to 6 years ruling
B. CGT Rollover would be possible in this case because I am about to purchase a replacement property at 500k

Main Questions : What is the most tax-efficient way going forward ?

Options after my research =
1. Take the CGT exemption on the current purchase (as exemption of main residence)

2. Rollover (defer) my CGT to the next property (deferring the whole CGT to the next property)

3. Combination of 1 (with the ground of CGT exemption due to compulsory acquisition ) + 2 (so that I can still hold my main residence exemption for the next property ) - Is option 3 even available ?

It would be great if you guys can let me know which options is the best and the reason behind it. Or if you have another other better ways, I am open to listen to it.

Thanks guys ! :)

Note : all the numbers and date above are made up for ease of calculation purpose
 
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