Private ruling: Income Tax - Capital Gains Tax
Date of advice: 12 May 2017
Published: September 2017
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the capital gain from the sale of the land assessable in the income year in which the contract was entered into? | A1: Yes. | Q2: Are you required to include the capital gain from the sale of the property in your assessable income for the relevant income year before a change of ownership occurs? | A2: No

Relevant facts and circumstances: You purchased land with other parties. You have signed a contract to sell this land and will be paid over a period of several years. The land title will not transfer until the final settlement payment is made. The purchaser will not have full use of the land and until the final settlement payment is made. You will amend your XXXX financial year tax return once the final settlement payment is made in the financial year ending XXXX.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10

Reasons for decision: Summary: You make a capital gain or capital loss as a result of a capital gains tax (CGT) event happening to an asset in which you have an ownership interest. You dispose of an asset when a change of ownership occurs from you to another entity. When property is disposed of under a contract, CGT event A1 occurs. The time of the event is when the contract is entered into. Taxation Determination TD 94/89 provides the Commissioner's view as to the year of income you are required 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. TD 94/89 refers to repealed subsection 160U(3) of the Income Tax Assessment Act 1936 (ITAA 1936). It was replaced by paragraph 104-10(3)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) which has the same meaning as the repealed section. Therefore the Commissioners views expressed in TD 94/89 apply equally to the equivalent provisions of the ITAA 1997. TD 94/89 provides that where the contract is settled in a later year of income, you are required to include a capital gain or capital loss in the year of income in which the contract is made, not in the year of income in which the contract is settled. However, you are not required to include any capital gain or capital loss in the appropriate year until an actual change of ownership occurs. Settlement effects a change of ownership and a disposal. When settlement occurs, you are required to include any capital gain or capital loss in the year of income in which the contract was made. If an assessment has already been made for that year of income, you may need to have that assessment amended. Although it is not required, you may, for convenience, include the capital gain or capital loss from the disposal of the land in your return for the income year in which the contract was entered into if you lodge that return before settlement occurs. In your case, the contract for sale of the land was signed in XXXX. Various instalments will be made until the final settlement payment is made in XXXX. Therefore the date of the disposal of the property will be in XXXX, and a capital gain will be derived by you in the XXXX financial year. You are required to include the capital gain in your return for the XXXX financial year; however you do not need to include that capital gain until settlement occurs, that is, after you receive the final settlement payment in the XXXX financial year. You will need to amend your XXXX financial year tax return once this final settlement payment is received.