Private ruling: Lodgment, penalties, and shortfall interest charge issues for a contract with a deferred settlement
Date of advice: 18 November 2025
Published: 5 January 2026
Ruling period: 1 July XXXX to 30 June XXXX

Ruling: Q1: Can the taxpayers defer reporting the capital gain on the transaction in calculating their income tax liability for the year ended 30 June XXXX, and defer paying the associated income tax liability, until after completion of the transaction occurs? | A1: Yes. | Q2: Will the Commissioner remit any shortfall interest charges and administrative penalties in full, if the taxpayers request amendments for the year ended 30 June XXXX after completion of the transaction? | A2: Yes.

Relevant facts and circumstances: 1. Business A is a privately owned business. 2. Business A's business comprises a number of different companies and trusts, owned by the taxpayers. 3. During the XXXX income year, Entity B, on behalf of the entities and vehicles holding an interest in Business A, executed a non-binding term sheet in relation to a proposed sale of Business A to a third-party acquirer. 4. According to the term sheet, the majority of the consideration for the transaction will be paid on completion, and completion will occur shortly after satisfying all conditions precedent, but not until the YYYY income year. 5. The transaction will be conditional upon meeting certain conditions precedent. 6. The vendors don't expect one of the relevant conditions to be satisfied until the YYYY income year. 7. The vendors intend to execute a sale and purchase agreement which will incorporate all the terms of the term sheet. 8. The vendors intend to lodge a separate application for a separate private binding ruling about whether the sale and purchase agreement becomes a legally binding contract only when the conditions precedent are satisfied. 9. The vendors expect that the sale of Business A will give rise to a capital gain for the taxpayers. 10. While the vendors reserve their position in this regard, they ask the Commissioner to assume (for the purposes of this private ruling application only) that the execution of the sale and purchase agreement by the parties in the XXXX income year will be the formation of a legally binding contract for the sale of Business A. Assumptions A. The sale and purchase agreement executed in the XXXX income year is a legally binding contract for the sale of Business A. B. The transaction will comprise the sale of shares in companies and units in unit trusts by the vendors. C. The taxpayers will make a capital gain in respect of the transaction for CGT purposes. D. The taxpayers will request the Commissioner to make the relevant amendments to report the capital gain within a reasonable period after completion of the transaction.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 5-5 | Income Tax Assessment Act 1997 Section 5-10 | Income Tax Assessment Act 1997 Section 104-10 | Tax Administration Act (Schedule 1) Section 280-100 | Tax Administration Act (Schedule 1) Section 280-160 | Tax Administration Act (Schedule 1) Section 284-75 | Tax Administration Act (Schedule 1) Section 298-20 | Tax Administration Act (Schedule 1) Section 361-5

Reasons for decision: Summary: 11. The taxpayers don't need to report the capital gain until completion. Capital gains from disposals don't need to be reported until completion because the disposal triggering the CGT event doesn't happen until that time. After completion, the taxpayers must request amendments to report the capital gain, and then pay the extra tax once assessed. | Detailed Reasoning - Explanation: The taxpayers don't need to report (and pay) the capital gain until completion because the disposal triggering the CGT event doesn't happen until that time. 12. CGT event A1 happens when you dispose of a CGT asset, and you dispose of an asset when there's a change in ownership of a CGT asset from you to another entity: see subsections 104-10(1) and (2). 13. Where there's a contract for the disposal, the time of the event is deemed to be when you enter that contract: paragraph 104-10(3)(a). 14. The example to subsection (3) says that you make the gain in the income year you entered the contract, not the income year that settlement takes place. [1] (The terms 'completion' and 'settlement' mean the same thing in this context.) 15. TD 94/89 [2] is about capital gains from land disposed of under contracts made in one year but settled in later years. At paragraphs 2 and 3, the TD says that the capital gain is included in the year the contract is made, but a taxpayer isn't required to include the capital gain in the appropriate year until the change of ownership occurs. [3] The change of ownership in the later year triggers the disposal, but the gain must be reported in the earlier year (in which the contract was made). If an assessment has already been made for that income year, the taxpayer must request to have that assessment amended. 16. Applying TD 94/89 to this transaction, the taxpayers don't need to report the capital gain until completion takes place. If, when completion happens, the taxpayers have already lodged their returns for the income year ended 30 June XXXX, then they must lodge amendment requests to report the capital gain. 17. Subsection 5-5(7) says if the Commissioner amends your assessment, any extra income tax resulting from the amendment is due and payable 21 days after the day the Commissioner gives you notice of the amended assessment. [4] Question 2: Will the Commissioner remit any shortfall interest charges and administrative penalties in full, if the taxpayers request amendments for the year ended 30 June XXXX after completion of the transaction? | Detailed Reasoning - Answer: Yes. | Summary: 18. Section 361-5 of Sch 1 to the TAA will apply to exempt the taxpayers from SIC. 19. If any SIC would otherwise be payable in this situation, the Commissioner would remit SIC in full under section 280-160 of Sch 1 to the TAA, because the shortfall is caused by the taxpayers acting consistently with ATO guidance in TD 94/89. 20. If any administrative penalties were imposed, the Commissioner would also remit them in full for the same reasons. | Detailed Reasoning - Explanation: The taxpayers will be exempt from SIC under section 361-5 of Sch 1 to the TAA. 21. Section 5-10 outlines when shortfall interest charge, or SIC, is payable. 22. Section 280-100 of Sch 1 to the TAA imposes SIC on an additional amount of income tax that you're liable to pay because the Commissioner amends your assessment for an income year. The liability is for each day beginning when income tax under the first assessment for the income year was due to be paid, and ending at the day before the Commissioner gave you notice of the amended assessment. 23. Section 361-5 of Sch 1 to the TAA has an exemption from liability to pay SIC. Relevantly, you aren't liable to pay SIC to the extent that charge would relate to a shortfall amount caused by you reasonably relying in good faith on a statement in a publication approved in writing by the Commissioner (unless the statement or publication is labelled as non-binding). 24. Section 361-5 of Sch 1 to the TAA will apply to exempt the taxpayers from SIC. Where you lodge a return for the income year of a potential capital gain before a deferred settlement triggers the CGT event, TD 94/89 allows you to lodge without reporting the gain, and to amend the assessment in a reasonable time after settlement. [5] TD 94/89 is binding advice. Here, any shortfall for the taxpayers would be caused by delaying reporting any capital gain, consistent with the advice in TD 94/89. 25. If for whatever reason, any SIC was payable, the Commissioner would then need to consider remitting SIC. 26. Section 280-160 of Sch 1 to the TAA allows the Commissioner to remit all or part of an amount of SIC if the Commissioner considers it fair and reasonable to do so. 27. If it were necessary to consider remission, the Commissioner would remit any SIC under section 280-160 of Sch 1 to the TAA. ATO guidance in TD 94/89 (at paragraph 5) says the Commissioner would ordinarily remit interest in full where you make amendment requests within a reasonable time after settlement. Consistent with this guidance, we think it would be fair and reasonable to remit any SIC arising from reporting the capital gain, where the amendment requests are made within a reasonable time after completion. In most cases, we think within one month of completion would be a reasonable time. The Commissioner would remit administrative penalties (if any applied) because the taxpayers would be acting consistently with ATO guidance in TD 94/89. 28. Section 284-75 of Sch 1 to the TAA imposes penalties for making false or misleading statements. 29. Section 298-20 of Sch 1 to the TAA gives the Commissioner a power to remit all or part of a penalty. 30. PS LA 2012/5 [6] makes the following points about the discretion. • The discretion is unfettered, meaning there's no legal restriction on when we can and cannot remit. [16A] • Remission isn't limited to the reasons listed here and officers should consider remission in any situation where the final penalty isn't a just outcome. [16B] • Officers should consider each case on its own merits, looking at all the relevant facts and circumstances. [16D] • The purpose of the penalty provision is to encourage entities to take reasonable care in complying with their tax obligations, and it also aims to promote consistent and equitable treatment. [16F] 31. If the taxpayers became liable for any false and misleading statement penalties in this situation, the Commissioner would remit under section 298-20. We think the taxpayers' proposed action of lodging returns before settlement, initially omitting the gain, and requesting amendments to include the gain promptly after settlement, is consistent with ATO guidance in TD 94/89, so it would be inappropriate to enforce penalties (if any applied). [1] Note 1 says if the contract falls through before completion, the event doesn't happen because no change in ownership occurs. [2] TD 94/89 Income tax: capital gains: in what year of income is a taxpayer require 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? [3] At paragraph 4, TD 94/89 said "although it is not required" a taxpayer who lodges before settlement may, for convenience, include the capital gain. [4] The note to subsection 5-5(7) says shortfall interest charge may be payable on any extra income tax payable as a result of the amended assessment (for each day starting when income tax was due and payable on the original assessment and ending on the day the Commissioner gave you notice of the amended assessment). [5] TD 94/89 says usually one month after settlement would be a reasonable period [6] Practice Statement Law Administration PS LA 2012/5 Administration of the false or misleading statement penalty - where there is a shortfall amount.

In this ruling: • SIC means shortfall interest charge | • Sch 1 to the TAA means Schedule 1 to the Taxation Administration Act 1953 | • all other provisions are in the Income Tax Assessment Act 1997.