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ATO Interpretative Decision

ATO ID 2004/719 (Withdrawn)

Income Tax
Capital gains tax: CGT event C2 - compensation payments arising from the occupation of France during World War II

Attention This ATO ID is withdrawn. This ATO ID contains a view that does not apply after the 2000-2001 income year. Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of decisions for income years up to, and including, the 2000-2001 income year.
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 22 December 2017.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Issue

Does CGT event C2 in section 104-25 of the Income Tax Assessment Act 1997 (ITAA 1997) happen if an individual receives a lump sum payment to compensate for property losses suffered by their distant relatives during World War II?

Decision

Yes. The receipt by an individual of a lump sum payment to compensate for property losses suffered by their distant relatives during World War II causes CGT event C2 to happen.

The resulting capital gain must be taken into account in working out the individual's net capital gain or loss for the income year in which the payment is received. However, the capital gain is disregarded if the payment is received during the 2001-02 or later income year: subsection 118-37(5) of the ITAA 1997.

Facts

In January 2001, an Australian resident individual received a payment from the Commission pour l'indemnisation des victimes de spoliations intervenues du fait des législations antisémites en vigueur pendant l'Occupation (the Commission).

The Commission was established by the French Government to compensate victims and their families for property loss resulting from anti-Semitic legislation in force during the occupation of France by Germany during World War II.

The individual received the payment as compensation for property losses suffered by the individual's distant relatives. The right to claim the compensation arose after 19 September 1985.

Reasons for Decision

A CGT asset includes a legal or equitable right that is not property: paragraph 108-5(1)(b) of the ITAA 1997.

The CGT asset in this case is the right to be considered for a payment by the Commission. The rights of heirs under the Commission are derived claims. Any payment is worked out by reference to what would have been the entitlement of an original claimant, had they been alive to claim. There is no requirement that the underlying property, or underlying rights to compensation were passed to the claimant.

CGT event C2 happens when an intangible CGT asset is surrendered, cancelled or forfeited or similarly ends: section 104-25 of the ITAA 1997. In this case, the right ended when the Commission made a payment to the individual. A capital gain will arise if the capital proceeds from the ending are more than the right's cost base: subsection 104-25(3) of the ITAA 1997.

The capital proceeds from the CGT event are equal to the amount of the payment. As the individual did not pay any money or property to acquire the right, its cost base will include only incidental costs relating to the acquisition of the right or its ending. Payments made to a legal adviser in relation to receipt of the payment are an example of incidental costs.

A capital gain is reduced by any amount included in assessable income under another provision of the ITAA 1997 or the Income Tax Assessment Act 1936 (ITAA 1936) as a result of the CGT event: section 118-20 of the ITAA 1997.

No amount is included in the individual's assessable income under another provision as a result of the payment. In particular, as the payment is not made to compensate a loss of income, no amount is included in the individual's assessable income under subsection 6-5(2) of the ITAA 1997 as ordinary income. Consequently, the capital gain is not reduced under section 118-20 of the ITAA 1997.

A capital gain or loss is disregarded if it is made from a CGT event relating to compensation for any personal wrong, injury or illness suffered by a taxpayer or their relative: paragraph 118-37(1)(b) of the ITAA 1997.

However, the wrong for which the payment is made in this case is not a personal wrong, but a wrong in relation to property owned by the individual's distant relatives. Consequently, the capital gain is not disregarded under paragraph 118-37(1)(b) of the ITAA 1997.

As the capital gain arose during the 2000-01 income year it must be taken into account in working out the individual's net capital gain or loss for that year.

However, a capital gain or loss made during the 2001-02 or later income year from the ending of a right to seek compensation for property losses suffered during the Second World War may be disregarded: subsection 118-37(5) of the ITAA 1997. Any such payment is also exempt from income tax: section 23AL of the ITAA 1936.

Date of decision: 17 August 2004

Year of income:Year ended 30 June 2001

Legislative references:
Income Tax Assessment Act 1936
   section 23AL

Income Tax Assessment Act 1997
   subsection 6-5(2)
   section 104-25
   subsection 104-25(3)
   paragraph 108-5(1)(b)
   section 118-20
   paragraph 118-37(1)(b)
   subsection 118-37(5)

Related Public Rulings (including Determinations)
Class Ruling CR 2002/59
Class Ruling CR 2002/61
Taxation Ruling TR 95/35

Keywords
capital gains
compensation claims
compensation for injury

Business line: Small Business/Individual Taxpayers

Date of publication: 31 August 2004

ISSN: 1445-2782

ATO ID 2004/719 (Withdrawn) history   Top  
   Date   Version 
   17 August 2004   Original statement   
 You are here ®  22 December 2017   Withdrawn   


 


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