Edited version of private ruling

Authorisation Number: 1011837235343

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Ruling

Subject: CGT liability

Question 1

Is your capital gains tax liability staggered over the period that proceeds for the sale of your land are received?

Answer

No.

Question 2

Is your net capital gain included in your assessable income as at settlement date?

Answer

No.

Question 3

If you wait until settlement to include your capital gain in your assessable income, can you amend a return lodged more than two years previously?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commences on:

1 July 2011

Relevant facts

You purchased a property which was rural land some time after 21 September, 1999.

For the purposes of this ruling, you are considering selling the property to land developers under terms where you receive an initial payment on the exchange of contract, a further payment in 12 months time, and further payments every year after that until settlement date.

The settlement date would then be several years after the exchange of contracts.

For the purposes of this ruling use and enjoyment of the land is not expected to pass to the purchaser until after settlement date.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 170(1)

Income Tax Assessment Act 1936 Subsection 170(10AA)

Income Tax Assessment Act 1997 Section102-5

Income Tax Assessment Act 1997 Section 103-10

Income Tax Assessment Act 1997 Section 104-5

Income Tax Assessment Act 1997 Section 108-5

Reasons for decision

Question 1

A capital gains tax (CGT) asset is any kind of property, or a legal or equitable right that is not a property. Examples of CGT assets are:

· land and buildings.

· a right to enforce a contractual obligation.

A disposal of a CGT is a trigger for a CGT event A1. The time that CGT event A1 takes place is when you enter into the contract for disposal.

Your assessable income includes any net capital gain that you earn for an income year. Any capital gain that you make from a CGT event A1 will then be included in your assessable income in the income year the contracts were exchanged. This applies to you even if you have not received any money for the asset that you have disposed of. The timing of the CGT event remains unchanged even if you will not receive your money until a later time, or if the money is paid in instalments.

Where a contract is settled in a later income year you are required to include a net capital gain in the income year that the contract is made, not in the income year in which the contract is settled.

In your case, even though you expect the bulk of the funds for your property to be paid to you via instalments over an extended period after the exchange of contracts, your net capital gain needs to be included in your assessable income at the time that contracts were exchanged, not when the contract was settled.

Question 2

You cannot alter the period of when a CGT event occurs. However, where a contract is settled in a later income year, a taxpayer is not required to include any capital gain or capital loss in the appropriate income year until an actual change of ownership occurs. It is the settlement date that effects a change in ownership.

When settlement occurs, you are then required to include any capital gain or capital loss in the income year in which the contract was made.

If an assessment has already been made for that income year, the taxpayer will need to have that assessment amended.

Where an assessment is amended to include a net capital gain and a liability for interest arises, the Commissioner would ordinarily exercise discretion to remit the interest in full when a request for amendment is lodged within a reasonable time after the date of settlement. In most cases, a month after settlement would be considered a reasonable period.

In your case, it will be the settlement of the contract that triggers the change of ownership although the CGT event will be deemed to have taken place at the time that the contracts were exchanged. You will then need to amend your tax return to reflect the CGT event that took place at the date of exchange of contracts.

Question 3

The Commissioner may amend an assessment of an individual for an income year within two years after the day on which the Commissioner issues the notice of assessment to the individual. However, for CGT events where the timing is decided by a contract being entered into, an assessment may be amended at any time.

In your case, if:

· your settlement date is more than two years after your contract date, and

· your notice of assessment for the income period has been issued

· you can still lodge an amendment to include your net capital gain in the income year when contracts were exchanged.

Further issues for you to consider

We have limited our ruling to the questions raised in your application. There may be related issues that you should consider including:

Use and enjoyment of the land passes before settlement date

CGT event B1 occurs if you enter into an agreement where the right to the use and enjoyment of a CGT asset passes to someone else before the title to the CGT asset does.

If use and enjoyment of the asset passes to another party prior to settlement you would need to include your net capital gain in the income year that use and enjoyment passed. You would not be able to wait until settlement as you would for a CGT event A1.

You may apply for another ruling on this, or any other matter.

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