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This chapter explains your capital gains tax (CGT) obligations for real estate. Real estate includes vacant blocks of land, business premises, rental properties, holiday houses and hobby farms. The CGT exemption for a main residence is also explained in this chapter.
Apart from the main residence rules, capital gains and capital losses on real estate are worked out under the rules set out earlier in this guide.
Land is a CGT asset. In some cases improvements made to land are treated as separate CGT assets - see Separate assets. A depreciating asset that is found in a building (for example, carpet or a hot water system) is also taken to be a separate CGT asset from the building. When a CGT event happens to your property you must work out a capital gain or capital loss for each CGT asset it comprises (or balancing adjustment in the case of depreciating assets sold with the property).
The most common CGT event that happens to real estate is its sale or disposal - CGT event A1. The time of the event is:
- when you enter into the contract for the disposal
- if there is no contract - when the change of ownership occurs, or
- if the asset is compulsorily acquired by an entity - the earliest of:
- when you received compensation from the entity
- when the entity became the asset's owner
- when the entity entered it under a power of compulsory acquisition, or
- when the entity took possession under that power.
If land is disposed of under a contract, it is taken to have been disposed of when the contract is entered into - not the settlement date. The fact that a contract is subject to a condition, such as finance approval, will generally not affect this date.
You are not required to include any capital gain or capital loss on your tax return for the relevant year until an actual change of ownership occurs. When settlement occurs, you must 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. Where an assessment is amended to include a net capital gain and a liability for shortfall interest charge (SIC) arises, remission of that interest charge will be considered on a case by case basis. Generally, it would be expected that the shortfall interest charge would be remitted in full where requests for amendment are lodged within a reasonable time after the date of settlement - which, in most cases, is considered to be one month. If you consider that the shortfall interest charge should be remitted, you should provide reasons why when you request the amendment to your assessment. More information about SIC is available on our website.
Last modified: 06 Oct 2009QC 18504
We may use some terms that are new to you. These words are explained in Definitions. Generally they are also explained in detail in the section where they first appear