ATO Interpretative Decision
ATO ID 2004/58 (Withdrawn)
Income Tax
Capital gains tax: sale of house - instalment sales contract - CGT event B1FOI status: may be released
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This ATO ID is withdrawn as the ATO view on this matter is now contained in the Guide to capital gains tax 2004-2005.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does CGT event B1 in section 104-15 of the Income Tax Assessment Act 1997 (ITAA 1997) occur when use and enjoyment of a house passes to another entity via an instalment sale contract?
Decision
Yes. CGT event B1 will occur when use and enjoyment of the property passes under the contract, even though title to the property will not pass until the final instalment is paid.
Facts
A taxpayer enters into a contract to sell a house under an instalment sale agreement, commonly known as a 'rent-buy' agreement.
Under the agreement, the purchaser makes weekly payments which consist of principal and interest components. The purchase price is due to be paid to the vendor in full no later than 15 years from the date of the contract. Until the full purchase price is paid to the vendor, the title to the property will not transfer to the purchaser.
However, title to the property may pass at an earlier time if the purchaser obtains finance to pay the balance of the purchase price. During the contractual period, the purchaser occupies the property and is responsible for the outgoings associated with the property, such as rates and insurance.
The agreement has a default clause which states that if an instalment is not paid within a certain number of days of the due date, the vendor may terminate the agreement.
Reasons for Decision
Section 104-15 of the ITAA 1997 specifies that a CGT event B1 will occur in the following circumstances:
- (1)
- CGT event B1 happens if you enter into an agreement with another entity under which:
- (a)
- the right to the use and enjoyment of a CGT asset you own passes to another entity; and
- (b)
- title in the asset will or may pass to the other entity at or before the end of the agreement.
- (2)
- The time of the event is when the other entity first obtains the use and enjoyment of the asset.
Under the instalment sale agreement, a purchaser obtains the right to use and enjoy the property upon entering into the contact. However there is no change of ownership of the property at that time.
As the purchaser has the use and enjoyment of the property, and the title to the property will or may pass at some future time, CGT event B1 is the relevant CGT event. Although CGT event A1 can apply if title passes, the ordering rule in section 102-25 of the ITAA 1997 directs that the event which applies is the event most specific to the taxpayer's circumstances.
Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
section 102-25
section 104-10
section 104-15
Subdivision 118-B
ATO ID 2004/59
Keywords
Capital gains tax
CGT event A1
CGT event B1
CGT main residence exemption
Disposal of real estate
Real estate transactions
Sale by instalments
Time of CGT event
ISSN: 1445-2782
| Date: | Version: | |
| 25 November 2003 | Original statement | |
| You are here | 29 September 2006 | Archived |