ATO Interpretative Decision

ATO ID 2003/637 (Withdrawn)

Income Tax

CGT: Capital proceeds payable by instalments - total amount receivable included as capital proceeds
FOI status: may be released

This ATO Interpretative Decision is a simple restatement of the law and does not contain an interpretative decision.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

How is the 'consideration in respect of the disposal of an asset' determined under former section 160ZD of the Income Tax Assessment Act 1936 (ITAA 1936), if the sale proceeds are payable by instalments over a period of time?

Decision

The instalments are money or an entitlement to receive money, and therefore the total amount receivable is included in the consideration in respect of the disposal of the asset under former paragraph 160ZD(1)(a) of the ITAA 1936.

Facts

In 1995 the taxpayer entered into a contract for the sale of an asset to an unrelated purchaser. The selling price under the contract was payable in ten equal annual payments with interest on the unpaid balance from time to time. The contract was completed on the day it was entered into, and at that time, the vendor was required to transfer to the purchaser the asset and any documentation that the vendor held in respect of the asset. The balance of the purchase price owing was subject to certain discounts if the purchaser elected to pay out the balance of its obligations under the contract earlier than the due date.

The purchaser made the required annual payments and there was no indication they would not continue to do so. In 2001, the vendor taxpayer sought out the purchaser and initiated negotiations for the payment of the outstanding balance. This resulted in the vendor agreeing that the purchaser would satisfy the remaining obligations under the contract by paying (in two equal payments) an amount that was less than the amount the vendor was entitled to, and also less than the amount that would have applied if the relevant discount had been taken up at that time by the purchaser.

As a result, the disposal consideration received by the taxpayer was less than the amount in the contract upon which the capital gain made from the disposal was calculated.

Reasons for Decision

Former paragraph 160ZD(1)(a) of the ITAA 1936 included in the 'consideration in respect of the disposal of an asset', amounts of money entitled to be received by a vendor taxpayer. Former subsection 160K(3) of the ITAA 1936 stated relevantly, that a reference to a person being entitled to receive money includes a reference to a person being entitled to receive money either immediately, or at a future date, and either in a lump sum or by instalments. Former paragraph 160ZD(1)(b) of the ITAA 1936 included property other than money within its operation.

Accordingly, if the proceeds from the sale of an asset in 1995 are payable by instalments over time, the total amount receivable is included in the consideration in respect of the disposal of the asset under former paragraph 160ZD(1)(a) of the ITAA 1936.

Note 1: This ATO Interpretative Decision covers the situation where the proceeds from the sale of an asset are payable by instalments over time. It is not concerned with the sale of an asset for a lump sum plus a right to a contingent and unascertainable amount which is covered by Taxation Ruling TR 93/15.

Note 2: Former subsections 160K(3) and 160ZD(1) of the ITAA 1936 were rewritten as subsection 103-10(2) and section 116-20 of the Income Tax Assessment Act 1997 (ITAA 1997) respectively. The decision set out in this ATO Interpretative Decision is therefore equally applicable to the operation of subsection 103-10(2) and section 116-20 of the ITAA 1997.

Date of decision: 14 October 2002

Year of income: Year ended 30 June 1995

Legislative References:
Income Tax Assessment Act 1936
   subsection 160K(3)
   subsection 160ZD(1)
   paragraph 160ZD(1)(a)
   paragraph 160ZD(1)(b)

Income Tax Assessment Act 1997
subsection 103-10(2)
section 116-20

Related ATO Interpretative Decisions
ATO ID 2003/635
ATO ID 2003/636
ATO ID 2003/638

Keywords
Capital gains tax
CGT capital proceeds

Business Line: Losses and CGT Centre of Expertise

Date of publication: 25 July 2003

ISSN: 1445-2782

history

	Date:	Version:
	14 October 2002	Original statement
You are here	19 March 2010	Archived

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).