Private ruling: Capital Gains Tax - Deferring inclusion of income until after settlement
Published: September 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner exercise his discretion to remit any shortfall interest charge, general interest charge and penalties, where over the life of the property subdivision, you prepare amendments to your income tax returns on an annual basis to include assessable capital gains where the CGT events occurred in an earlier financial year? | A1: No. | Q2: Will the Commissioner exercise his discretion to remit any shortfall interest charge, general interest charge and penalties, where over the life of the property subdivision, you prepare amendments to your income tax returns on a six monthly cycle? | A2: Yes.

Relevant facts and circumstances: You own a number of acres of farmland over a number of Titles. In 2012, you signed a development agreement with a company to effect a staged subdivision and development of the land into vacant residential blocks for individual sale to the public. In 2013, you obtained a private ruling confirming that the sales of the subdivided land will be on capital account, with gains assessed under the capital gains tax (CGT) provisions. It is intended that the land will be subdivided into 100s of separate lots. The development is expected to take approximately several years to complete. During the latter part of the 2015-16 year, a number of contracts for sale on the first stage of the subdivision were signed. Development works on the first stage of the subdivision have commenced with the first blocks due to settle sometime in 2017. The exact timing of future development stages will depend on sales demand, however it is anticipated that lot sales will occur at a steady pace over the life of the subdivision. Later stages of the development are now available for sale. It is expected that the typical time between land sale contracts being signed and settlement occurring will be more than one year. There will be 100s of lots being sold over the life of the subdivision, with sales expected to occur at various times over a number of income years. You propose to lodge a single set of tax return amendments and penalty/interest remission requests by a specific date each year, covering settlements which occurred during the financial year ending on the preceding 30 June. In the alternative, you propose to lodge on a 6 monthly amendment cycle of tax return amendments and penalty/interest remission requests on a specific date, covering settlements occurring during one half of each financial year; and on another specific, covering settlements occurring during the other half of each financial year.

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

Reasons for decision: Summary: Summary The Commissioner will exercise his discretion to remit any shortfall interest charge, general interest charge and penalties provided you lodge amendments for settlements occurring during one half of each financial year on a specific date each financial year; and for settlements occurring during the other half of each financial year on a specific date of each financial year. | Detailed Reasoning - Detailed reasoning: 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 this case, CGT event A1 may occur on hundreds of occasions over the life of the subdivision. In light of this, the Commissioner will consider it reasonable and accept that you lodge tax return amendments and penalty/interest remission requests on a 6 monthly basis. You will lodge amendments, covering settlements occurring during one half of each financial year on a specific date each financial year; and for settlements occurring during the other half of each financial year on a specific date of each financial year. | Detailed Reasoning - Further Information: A ruling would not normally extend beyond four years as the likelihood of change - to the law or to the factual situation - is too great. Accordingly, a ruling has only been made in respect of the 2016-17 to 2019-20 income years. However, should the activities outlined in this ruling remain materially unchanged it is expected that future years would be assessed in accordance with this ruling.