No Capital Gains Tax for Properties in
Natural Disaster Land Swap Programs
Any property owners with investment properties involved in the Lockyer Valley Regional Council's land swap program will be eligible for capital gains tax (CGT) relief as part of the Gillard Government's ongoing work to assist people affected by the floods last summer.
It is estimated about 40 per cent of the properties eligible to be swapped as part of the program are investment properties.
Currently, taxpayers affected by a natural disaster may have to pay CGT when a property they own is destroyed or disposed of and they receive a replacement property from an Australian government agency (Commonwealth, State, Territory or local) in a land swap program for natural disasters.
This measure allows taxpayers to choose a CGT exemption when they participate in an Australian government agency program that provides replacement assets to taxpayers affected by a natural disaster, like the one being run by Lockyer Valley Regional Council.
"This will remove tax impediments to programs like the Lockyer Valley Regional Council's land swap program, so flood affected property owners can get back on track without having to worry about paying capital gains tax on their original property," the Assistant Treasurer said.
"Taxpayers will also be able to maintain pre‑CGT status on their replacement asset so they are not disadvantaged in tax terms if they participate in this type of program."
This measure applies generally to CGT events happening on or after 1 July 2011.
A brief explanation of the changes is included in the Attachment. A discussion paper providing further detail on these changes and information on how to make a submission is available on the Treasury website.
9 October 2011
Additional Background Information
There are 72 property owners participating in the first ballot of the Lockyer Valley Regional Council's land swap program, which is an eligible program for the CGT relief. There will be one or two more ballots under the program. Approximately 40 per cent of properties that are eligible for the program are investment properties.
- These proposals have an unquantifiable but small cost to revenue over the forward estimates of less than $10 million each year.
Taxpayers that are affected by a natural disaster will be able to choose an exemption for a CGT asset that is replaced under an Australian government agency (Commonwealth, State, Territory or local) replacement asset program. A taxpayer that makes that choice will obtain a market value cost base (and reduced cost base) for their replacement asset.
- Taxpayers that would be eligible to choose this exemption but have pre‑CGT status on their original asset will obtain pre‑CGT status for their replacement asset.
- Taxpayers that participate in a land swap program that would be eligible to choose this exemption in relation to their land but have pre‑CGT status on their original land will also obtain pre-CGT status for a replacement dwelling built on the new land, if the original land and dwelling were treated as a single asset just before the natural disaster.
- Taxpayers that participate in a land swap program and choose this CGT exemption in relation to their land will obtain a further CGT exemption where they have a separate CGT taxing point on their dwelling if it is destroyed in the natural disaster.
Taxpayers that are affected by a natural disaster that receive a replacement asset under an Australian government agency program will obtain a CGT exemption if they face CGT consequences on rights that arise under the program. A CGT exemption will also apply to rights arising under a cash grant program for taxpayers affected by a natural disaster (whether the program is run by an Australian government agency or another entity).
Taxpayers whose main residence is accidentally destroyed will be able to access the main residence exemption to the extent they would have been able to had their main residence not been destroyed, where they choose to rebuild the dwelling and then sell the land or dwelling or both without establishing the new dwelling (and its adjacent land) as their main residence