Private ruling: Capital gains tax
Date of advice: 27 July 2017
Published: November 2017
Ruling period: Financial year ending 30 June 2016 | Financial year ending 30 June 2017 | Financial year ending 30 June 2018
Date scheme commenced: 1 July 2015

Ruling: Q1: Did you dispose of your investment property for CGT purposes in the financial year ending 30 June 2017 in the circumstances you describe? | A1: No | Q2: Does the Commissioner have a discretion to allow a capital loss from a future income year to be applied to reduce a capital gain from a previous income year in the circumstances you describe? | A2: No | Q3: Is a roll-over available in the circumstances you describe? | A3: No

Relevant facts and circumstances: You owned an investment property (property). You signed a contract of sale in June 2016 (contract date) with settlement in July 2016 (settlement date). The sale of the property resulted in a capital gain. You have shares that you may sell in the financial year ending 30 June 2018. You expect to make a capital loss upon their disposal. After disposing of the shares, you want use the capital loss from the sale of the shares to reduce the capital gain from the sale of the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 100-33 | Income Tax Assessment Act 1997 Section 102-5 | Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 112-115 | Income Tax Assessment Act 1997 Section 112-150

Reasons for decision: Detailed Reasoning - Timing of CGT event A1: You make a capital gain or capital loss if a CGT event happens to a CGT asset under section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997). Property is considered to be a CGT asset. CGT event A1 happens if you dispose of your ownership interest in a CGT asset (Section 104-10 of the ITAA 1997). You dispose of that interest if a change of ownership occurs from you to another entity, including a change in beneficial ownership. Subsection 104-10(3) of the ITAA 1997 provides that where a CGT asset is disposed of under a contract, the time of the CGT event A1 is the time when you enter into the contract for the disposal. If there is no contract, the time of the event is when the change of ownership occurs. The following example is provided in the legislation: In June 1999 you enter into a contract to sell land. The contract is settled in October 1999. You make a capital gain of $50,000. The gain is made in the 1998-99 income year (the year you entered into the contract) and not the 1999-2000 income year (the year that settlement takes place). In your case, CGT event A1 happened on the date the sale contract for the property was entered into, being June 2016. Accordingly, any net capital gain made upon the disposal must be included in your tax return for the financial year ending 30 June 2016 (the year in which the contract was entered into) and not the financial year ending 30 June 2017 (the year in which settlement occurred). | Detailed Reasoning - Calculating Net Capital Gain: Section 102-5 of the ITAA 1997 provides that your assessable income includes your net capital gain (if any) for the income year and sets out how you calculate your net capital gain as follows: Step 1. Reduce the capital gains you made during the income year by the capital losses (if any) you made during the income year. Step 2. Apply any previously unapplied net capital losses from earlier income years to reduce the amounts (if any) remaining after the reduction of capital gains under step 1. Step 3. Reduce by the discount percentage each amount of a discount capital gain remaining after step 2 (if any). Step 4. If any of your capital gains qualify for any of the small business concessions, apply those concessions to each capital gain. Step 5. Add up the amounts of capital gains (if any) remaining after step 4. The sum is your net capital gain for the income year. There is no provision that would allow a capital loss from a future income year to be applied to reduce a capital gain from a previous income year. The Commissioner does not have a discretion to allow you to apply a capital loss from a sale of shares in the financial year ending 30 June 2018 to reduce the amount of the capital gain you made upon the disposal of the property in the financial year ending 30 June 2016 in the circumstances you describe. | Detailed Reasoning - CGT Roll-over: Section 100-33 of the ITAA 1997 provides that roll-overs allow you to defer or disregard a capital gain or loss from a CGT event. They apply in specific situations. Some require a choice (for example, where an asset is compulsorily acquired) and some are automatic (for example, where an asset is transferred because of marriage or relationship breakdown). There are 2 types of roll-over: 1. a replacement-asset roll-over allows you to defer a capital gain or loss from one CGT event until a later CGT event happens where a CGT asset is replaced with another one; 2. a same-asset roll-over allows you to disregard a capital gain or loss from a CGT event where the same CGT asset is involved. The replacement-asset roll-overs are listed in section 112- 115 of the ITAA 1997, and the same-asset roll-overs are listed in section 112-150 of the ITAA 1997. None of roll-overs apply to your circumstances. Accordingly, a roll-over is not available to defer or disregard the capital gain made on the sale of the property in financial year ending 30 June 2016.