ATO ID 2003/635: CGT: Capital proceeds payable by instalments - not all received - no reduction of capital proceeds received
Date of decision: 14 October 2002
Year of income: Year ended 30 June 1995
Business line: Public Groups and International

Issue
Where the 'consideration in respect of the disposal of an asset' is payable by instalments over time, is that consideration later reduced under former paragraph 160ZD(1)(a) of the Income Tax Assessment Act 1936 (ITAA 1936) if some of the monies are ultimately not received as a result of the vendor agreeing, several years after completion of the sale agreement, to a reduction in the amount owing?

Decision
No. The consideration in respect of the disposal determined under former paragraph 160ZD(1)(a) of the ITAA 1936, is not reduced by that provision if some of the monies are ultimately not received because that provision, by itself, does not allow such a reduction.

Facts
In 1995 the taxpayer entered into a contract for the sale of an asset to an unrelated purchaser. The selling price under the contract was payable in ten equal annual payments with interest on the unpaid balance from time to time. The contract was completed on the day it was entered into, and at that time, the vendor was required to transfer to the purchaser the asset and any documentation that the vendor held in respect of the asset. The balance of the purchase price owing was subject to certain discounts if the purchaser elected to pay out the balance of its obligations under the contract earlier than the due date. The purchaser made the required annual payments and there was no indication they would not continue to do so. In 2001, the vendor taxpayer sought out the purchaser and initiated negotiations for the payment of the outstanding balance. This resulted in the vendor agreeing that the purchaser would satisfy the remaining obligations under the contract by paying (in two equal payments) an amount that was less than the amount the vendor was entitled to, and also less than the amount that would have applied if the relevant discount had been taken up at that time by the purchaser. As a result, the disposal consideration received by the taxpayer was less than the amount in the contract upon which the capital gain made from the disposal was calculated.

Reasons for decision
Summary: Where the proceeds from the disposal of an asset in 1995 are payable by instalments over time, they constitute money or an entitlement to money, and thus, the full amount receivable forms part of the 'consideration in respect of the disposal of the asset' under former paragraph 160ZD(1)(a) of the ITAA 1936. If some of the proceeds are ultimately not received as a result of an agreed reduction several years after completion of the sale agreement, former section 160ZD of the ITAA 1936, of itself, does not provide for any reduction of the consideration in respect of the disposal of the asset. Former section 160ZF of the ITAA 1936 may operate in certain circumstances to reduce the consideration, but this is only where the non-receipt is not due to an act or thing done or omitted to be done by the taxpayer or an associate of the taxpayer, and the taxpayer has taken all reasonable action to secure payment. See ATO Interpretative Decision ATO ID 2003/636 in relation to the operation of former section 160ZF of the ITAA 1936. Note 1: Taxation Determination TD 93/45 covers the situation where a lesser amount of consideration is negotiated prior to settlement of the sale agreement. Note 2: Former subsection 160ZD(1) and section 160ZF of the ITAA 1936 were rewritten as sections 116-20 and 116-45 of the Income Tax Assessment Act 1997 (ITAA 1997) respectively. The decision set out in this ATO Interpretative Decision is therefore equally applicable to the operation of section 116-20 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1936 subsection 160ZD(1) paragraph 160ZD(1)(a) section 160ZF
Related ATO interpretative decisions: ATO ID 2003/636 | ATO ID 2003/637 | ATO ID 2003/638
Subject references: Capital gains tax CGT capital proceeds