Private ruling: Capital Gains Tax - Deferring inclusion of income until after settlement time
Date of advice: 6 March 2017
Published: March 2018
Ruling period: Year ending 30 June 2016.
Date scheme commenced: 4 September 2015.

Ruling: Q1: Will the Commissioner exercise his discretion to remit any interest arising as a result of amendments to your tax returns after settlement? | A1: Yes.

Relevant facts and circumstances: You entered into a contract of sale with the purchaser for the sale of your property for a specified amount. The purchaser paid a deposit of 5% of the purchase price. Some months later, an instalment of a specified amount will be payable by the purchaser. Approximately one year later, the balance of the purchase price will be payable by the purchaser on settlement. You will amend your relevant income tax return reflecting your capital gain on the sale of the property within one month of settlement. The purchaser will not obtain possession of the property until settlement. At the time of entering the contract, you held the property on capital account.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Taxation Administration Act 1953 Schedule 1 Division 280

Reasons for decision: Summary: Taxation Determination TD 94/89 Income tax: capital gains: in what year of income is a taxpayer required for tax purposes to include a capital gain or loss in relation to land disposed of under a contract which is made in one year of income, but which is settled in a later year of income? provides that a taxpayer is not required including any capital gain or loss in the appropriate year until an actual change of ownership occurs, being settlement. Where the income tax assessment for the appropriate year has already issued, it will be the taxpayer’s responsibility to amend the assessment once settlement has occurred. Income tax assessments that are amended to include an amount of omitted income may give rise to interest on the shortfall amount. However, Taxation Determination TD 94/89 provides at paragraph 5, that where the amendment is made within a reasonable time the discretion to remit the interest is likely to be exercised. It is generally accepted that within a period of one month following settlement would be reasonable. In your case, CGT event A1 occurred when the contract was executed, however, settlement will occur on at a later date. Having considered your circumstances we consider that it would be fair and reasonable to grant full remission of the shortfall interest applicable to the amended assessment, provided you request an amendment within one month of the settlement.