Private ruling: Capital gains tax event
Date of advice: 3 November 2025
Published: 22 December 2025
Ruling period: Year ended 30 June 20YY | Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Did the capital gains tax (CGT) event A1 happen when the contract settled? | A1: No.

Relevant facts and circumstances: On DD MM 20YY, you purchased XX m2 land and completed building a house in 20YY. The property is jointly owned by both of you. On DD MM 20YY, you received the first rental income. In MM 20YY, you elected the property as your principal place of residence and started renovations on the X cottage on the property to turn it into a X-bedroom cottage. In MM 20YY, you started renting out the cottage. In mid-20YY the final rent was received from the cottage. You sold your residence and signed the contract on DD MM 20YY, in the prior year. The sale was done to pay off the debts. The property went to market on DD MM 20YY. Due to a natural disaster, the open house events were not attracting buyers, disrupting the open house events, disrupting the open house events. The sale contract for $XX had the DD-day settlement date of DD MM 20YY. The settlement date for the sale of the property occurred in the following financial year. The received funds paid for private expenses and ATO obligations.

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

Reasons for decision: Detailed Reasoning - Capital Gains Tax (CGT) event A1 - disposal of a CGT asset: CGT events are the different types of transactions that may result in the capital gain or loss. The most common CGT event is A1. Section 104-10 of the income tax assessment Act 1997 (ITAA 1997) explains that an even occurs whenever there is a change in ownership for a CGT asset, for instance, when a taxpayer disposes a CGT asse to someone else. A property is a CGT asset under section 108-5 of the ITAA 1997. The CGT even A1 will happen if the transfer of legal ownership occurs, this is treated as a disposal for CGT purpose. The time that CGT event A1 happens is when the taxpayer enters the contract for the purpose of disposal of the CGT asset. The transfer of property occurs, and the capital gain or loss is recognised on the date the contract is signed. As outlined in the legislative example in section 104-10(3) of the ITAA 1997 - in XXX 1999 you enter 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 - 1999 income year (the year you entered the contract) and not the 1999- 2000 income year (the year that settlement takes place). This example illustrates that, where a contract is entered into at a different time to when it is settled, it is the time that the contract is entered into that is relevant. The time of settlement is in effect ignored. Subsection 104-10(4) of the ITAA 1997 provides that you make a capital gain if the capital proceeds from the disposal are more than the asset's cost base and you make a capital loss if those capital proceeds are less than the asset's reduced cost base. Individuals who own a CGT asset as joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset of 50% each. In your case, the sale of your residence is a CGT asset and the CGT A1 applies and the timing of the transaction the date the contract was signed. This is in the prior year while the settlement date occurred in the next financial year. Whilst we understand that in the year of the contract a natural disaster disrupted the open house events and that during this period, you sold your business while facing financial pressures, the timing of the event cannot be changed. This is a requirement of section 104-10 of the ITAA 1997. The Commissioner does not have the discretion on the application of CGT and to apply the law any differently. Once the property is disposed, this triggers a CGT event, and once the event occurs, it cannot be reversed. You are required to declare the capital gains event in the financial year that the contract was signed, in the 20YY financial year and not the year of settlement.