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Ruling
Subject: Capital gains tax discount
Question 1
Will the Commissioner allow the CGT discount, under Subdivision 115-A of the Income Tax Assessment Act 1997 to apply to a property that was held for less than 365 days?
Answer
No.
This ruling applies for the following period
30 June 2011.
The scheme commenced on
After 1 July 2009.
Relevant facts
A property was purchased by the Taxpayer on behalf of a trust.
The purchaser signed the contract on X 2009. The vendor signed the contract on X 2009.
On X 2010 the property was sold.
In the Schedule of the Estate Agents (Contracts) Regulations 2008 (VIC), it is stated that the day of sale is the date by which both parties have signed the contract.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 115-25(1)
Income Tax Assessment Act 1997 Subdivision 115-A
Estate Agents (Contracts) Regulations 2008 (VIC) Schedule
Reasons for decision
The legislative references referred to herein are from the ITAA 1997, unless otherwise stated.
Issue:
The taxpayer wants the Commissioner to apply the CGT discount to a property that was held for less than 365 days.
Law:
Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event. The most common event is CGT event A1. CGT event A1 happens when you dispose of an asset to someone else. You are deemed to have disposed of an asset if a change in ownership occurs from you to another entity.
A taxpayer will be taken to have acquired or disposed of their property for CGT purposes when they enter into a contract to purchase or sell it. In Victoria the day of sale is the date by which both parties have signed the contract (The Schedule of Estate Agents (Contracts) Regulations 2008 (VIC)).
A discount capital gain is a capital gain that satisfies the requirements of Subdivision 115-A. For an individual or trust the discount percentage is 50%. There are a number of requirements for a capital gain to be a discount capital gain, one of which is that the asset was acquired at least 12 months before the capital gain tax event (subsection 115-25(1)). Taxation Determination TD 2002/10 gives guidance on what is meant by the phrase "at least 12 months before" in subsection 115-25(1).
The use of the words "at least" requires a clear period of 12 months to expire between the acquisition of the CGT asset and the happening of the CGT event. It is the ATO's view that that both the acquisition date and the date on which the CGT event happens must be excluded in reckoning the 12 month period. So, a period of 365 whole days must elapse between the day of acquisition and the day of disposal of the CGT asset.
The Commissioner does not have discretion to alter this 365 day requirement.
Taxpayer's contentions:
Even though the taxpayer did not satisfy the 12 month requirement in order to get the 50% CGT discount, as it is only two days from meeting the requirement, the taxpayer is asking for a kind consideration.
Even though the purchase was finalised on X 2009, the contract was signed on X 2009. This makes the ownership period only one day less than the required 12 month period.
The taxpayer made a mistake as professional advice was not clear to them. They assumed that the purchase and sales dates were included in the 12 month requirement.
If the taxpayer was advised more clearly, in reality, the property could have sold on X 2010 instead of X 2010.
On page 16 of "Guide to capital gains tax concessions for small business" (NAT 8384- 05.2007) it states:
To be eligible for the CGT discount:
· You must have owned the asset involved for at least 12 months.
It is argued that this form of advice was not clear to the taxpayer, as it does not specify the requirement that purchase and sales dates are not to be included in the 12 month period.
The taxpayer misunderstood the law. The Taxpayer is asking for a kind leniency.
Application of Law:
The contract for sale of land did not come into force until after X 2009 as this was the date that the contract was signed by both the vendor and purchaser. The property was sold on X 2010. As both the acquisition date and the date of the CGT event are excluded the taxpayer only held the property for 364 days. The Commissioner does not have discretion to alter the 365 day requirement. The Taxpayer will not be entitled to the CGT discount.