Private ruling: Capital gains tax
Date of advice: 9 July 2018
Published: September 2018
Ruling period: Year ended 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Is CGT event A1 the most appropriate CGT event to apply to the sale of the Property? | A1: Yes

Relevant facts and circumstances: You entered into a contract during the 20xx income year to sell the Property. The sale price for the Property is $X. The Property has four staged settlements of land, being Parcel A, Parcel B, Parcel C and Parcel D. The first settlement of Parcel A occurred during the 20xx income year and the price was one quarter of the sale price. Parcel B will settle 24 months after the Day of Sale and the price is one quarter of the sale price. Parcel C will settle 36 months after the Day of Sale and the price is one quarter of the sale price. Parcel D will settle 48 months after the Day of Sale and the price is one quarter of the sale price. Under the contract, the purchaser has been granted a non-exclusive licence to access the Property for a particular limited purpose. The contract states that: Nothing in this Licence shall constitute or be construed as constituting the giving or taking of possession of the Land under the Contract or otherwise. The purchaser does not have exclusive rights for use and enjoyment of the land prior to the transfer of the land title. There has been no agreement made between yourselves and the purchasers to grant them exclusive use or enjoyment of the property before title transfer occurs for each parcel of land. You will continue to carry on your primary production activities on the land until settlement occurs for each parcel of land. The purpose of the staged settlements is to protect you from the purchaser in any events where the purchaser cannot fulfil their obligations of the contract.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20. | Income Tax Assessment Act 1997 Section 102-25. | Income Tax Assessment Act 1997 Subsection 104-10(3).

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss arises if a CGT event happens to a CGT asset. A CGT asset is any kind of property, or a legal or equitable right that is not property; real estate is a CGT asset (section 108-5 of the ITAA 1997). The most common CGT event happens if you dispose of an asset or an interest in an asset to someone else; the disposal of a CGT asset causes a CGT event A1 to happen. You dispose of an asset when a change of ownership occurs from you to another entity. The time of the event is when you enter into the contract for the disposal or if there is no contract when the change of ownership occurs (subsection 104-10(3) of the ITAA 1997). Although the purchaser has been granted a licence to access the Property prior to settlement, this access is not exclusive and is limited to one particular type of activity. It is not considered that the granting of this limited access means that, for the purposes of CGT event B1, the right to the use and enjoyment of the land passed to the purchaser prior to settlement occurring. CGT event A1 is the most appropriate CGT event. Therefore, the date you entered into the contract for sale is the disposal date of your property. Any capital gain realised will need to be included in your income tax return in the income year that the contract is signed. Generally, settlement of the property occurs at a later date and in some cases that date occurs in a later income year to the signing of the contract. Paragraph 3 of Taxation Determination TD 94/89 states, that a taxpayer is not required to include 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, as discussed in TD 94/89 at paragraph 5, 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, the contract has been signed during the 20xx income year, while the settlement dates for each parcel of land will occur over the next four years. Any capital gain would need to be included in your 20xx income tax return; however you would not be required to amend that return until the time of each settlement. Where the amendments are made within a reasonable time, it would be expected that any interest that would arise would be remitted.