Australia Offers Flood Victims CGT Relief

by Mary Swire, Tax-News.com, Hong Kong

11 October 2011

Owners of investment properties involved in the Australian Lockyer Valley Regional Council's land swap program will be eligible for capital gains tax (CGT) relief as part of the federal government's ongoing work to assist people affected by the floods last summer. It is estimated that about 40% of the properties eligible to be swapped as part of the program are investment properties.

The land-swap deal will relocate residents of the Lockyer Valley, which was devastated by the floods, to higher ground which should be safe from any future flooding events. Participants will be able to swap their piece of land in the flood zone for a block located on a nearby hill.

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.

Under the new proposals 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 replacement asset program.

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).

People 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.

"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 Bill Shorten 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," he added.

This measure applies generally to CGT events happening on or after July 1, 2011.

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