Capital gains tax relief for transformation of water rights
On 27 February 2009, the Assistant Treasurer, Chris Bowen MP, announced that the government will provide capital gains tax (CGT) roll-over relief for irrigators who transform their entitlement to water under an irrigation right, held against an irrigation infrastructure operator, into an individual water entitlement.
This roll-over will facilitate transformation arrangements allowed under the new water market rules that were made under the Water Act 2007 by deferring the CGT consequences of the transformation for irrigators until they subsequently deal with their individually held water entitlement. This change will apply to CGT events that happen on and after 1 July 2008.
The government will also allow termination and exit fees to be recognised when calculating a capital gain or loss on an asset by including these costs in the asset’s cost base. This change, also applying to CGT events that happen on and after 1 July 2008, will be available for all assets and not just those relating to the irrigation industry.
Initial consultation was undertaken in March 2009 on the design of these amendments — a consultation paper providing further information about this proposal is available on the Treasury website. An exposure draft of the legislation will be released for consultation on the Treasury website after the initial consultation.
Lodging tax returns
Taxpayers who have made a capital gain in 2008–09 and need to lodge prior to any changes becoming law, should lodge their 2008–09 income tax returns on the basis of the law as it currently stands.
Taxpayers who have included a capital gain in their income tax returns for 2008-09 as a result of a transformation arrangement occurring and wish to apply the changes, should not seek an amendment until the legislation is enacted.
We will apply the existing law in the period between the announcement and enactment of the proposed law, but we will not undertake specific compliance activity to enforce the existing law during this period.
