Private ruling: Capital gain
Date of advice: 3 November 2017
Published: March 2018
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the capital gain from the sale of the property assessable in the income year in which the contract is 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 settlement occurs? | A2: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10

Reasons for decision: Summary: Capital gains tax provisions Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens. Timing of the CGT event Under section 104-10 of the ITAA 1997, CGT event A1 happens when you dispose of a CGT asset. You are taken to have disposed of an asset if there is a change of ownership of the asset 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. Taxation Determination TD 94/89 discusses the situation where a contract is made in one income year and settled in a later income year. Paragraph 1 of TD 94/89 states that where the contract is settled in a later year of income, a taxpayer is required to include a capital gain or 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, paragraph 3 of 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. Settlement effects a change of ownership and a disposal. When settlement occurs, the taxpayer is then required to include any capital gain or loss in the year of income in which the contract was made. Where an assessment has already been made for that year of income, the taxpayer will need to have that assessment amended. In your case, the contract for the disposal of the property was entered into and the payments occur in instalments with the final balance being paid in a later income year. You remain the owner on the title until then. Therefore, as per TD 94/89, you will not need to report the capital gain until settlement occurs. However, you will need to report it in the income year in which the CGT even occurred. That is, although you must include your capital gain in the income year in which the contract was made, you are not required to do this until settlement occurs.

Relevant facts: You have a share of a property. | The property has been sold. A sales contract was entered into in. | The property will take more than a year to settle. | A deposit has been received. | The final balance is due on settlement in a later income year. | Ownership of the land is not transferred to the new owner until the final instalment is made by the purchasers. You remain the owner on the title until then.