| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012737633051
Ruling
Subject: Capital proceeds payable by instalments
Question:
Can your capital gain on your sale of a commercial rental property be apportioned over actual sale proceed amounts received?
Answer:
No
This ruling applies for the following period:
Year ending 30 June 2015
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
On 1 July 20XX, you sold (disposed of) a commercial rental property for over $1,000,000 (where a change of ownership occurred from you to another entity).
A portion of the sale proceeds will be paid on the day of the sales contract, with the balance to be paid in 20YY.
The purchaser is entitled to receive rental income from the date signing the contract.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 116-20
Reasons for decision
Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides CGT event A1 happens if you dispose of a CGT asset.
You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.
The time of the event is when you enter into the contract for the disposal. You make a capital gain if the capital proceeds from the disposal are more than the asset's cost base.
Section 116-20 of the ITAA 1997 is about the general rules about capital proceeds and states the capital proceeds from a CGT event are the total of:
(a) the money you have received, or are entitled to receive, in respect of the event happening; and
(b) the market value of any other property you have received, or are entitled to receive, in respect of the event happening (worked out as at the time of the event).
Sections 116-30 to 116-110 of the ITAA 1997 provide modifications to and special rules about capital proceeds, as follows (none of which apply to your situation):
• Section 116-30: Market value substitution rule: modification 1
• Section 116-35: Companies and trusts that are not widely held
• Section 116-40: Apportionment rule: modification 2 (if you receive a payment in connection with a transaction that relates to more than one CGT event, the capital proceeds from each event are so much of the payment as is reasonably attributable to that event.)
• Section 116-45: Non-receipt rule: modification 3
• Section 116-50: Repaid rule: modification 4
• Section 116-55: Assumption of liability rule: modification 5
• Section 116-60: Misappropriation rule: modification 6
• Section 116-65: Disposal etc. of a CGT asset the subject of an option
• Section 116-70: Option requiring both acquisition and disposal etc.
• Section 116-75: Special rule for CGT event happening to a lease
• Section 116-80: Special rule if CGT asset is shares or an interest in a trust
• Section 116-85: Section 47A of 1936 Act applying to rolled-over asset
• Section 116-95: Company changes residence from an unlisted country
• Section 116-100: Gifts of property
• Section 116-105: Conservation covenants
• Section 116-110: Roll-overs for merging superannuation funds
In your case, you disposed of a CGT asset, where a change of ownership occurred from you to another entity. Since none the modifications to and special rules about capital proceeds apply to your situation, your capital proceeds for the CGT event that occurred on 1 July 20XX will be the money you have received, or are entitled to receive, in respect of the event happening. That is, your capital proceeds for the event the occurred on 1 July 20XX will be the full sale price.
This outcome is consistent with ATO Interpretative Decision ATO ID 2003/635, viewable in the internet.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
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).
