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Edited version of private advice
Authorisation Number: 1012245121206
Ruling
Subject: Capital gain tax
Questions:
1. Is any the capital gain made on your investment property included in your assessable income for taxation purposes in 2012-13 financial year?
Answer: No.
2. Is any the capital gain made on your investment property included in your assessable income for taxation purposes in 2011-12 financial year?
Answer: Yes.
3. Is the interest accrued on the deposit monies held in relation to the sale of your investment property assessable in the 2012-13 financial year?
Answer: Yes.
This ruling applies for the following period
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commenced on
1 July 2011
Relevant facts
The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:
• your application for private ruling
Your investment property was put up for sale and a contact for sale was signed in the relevant financial year.
The deposit was kept in trust by the agent to be released on settlement with any interest to be shared between the vendors and purchaser.
Settlement occurred and the deposit and interest were released to you in the subsequent financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 6-5
Income Tax Assessment Act 1997 - Section 100-20
Income Tax Assessment Act 1997 - Section 102-5
Income Tax Assessment Act 1997 - Section 104-10
Income Tax Assessment Act 1997 - Division 104
Reasons for decision
Capital gains tax (CGT)
Section 102-5 of the Income Tax Assessment Act 1997 (ITAA 1997) includes in assessable income any 'net capital gain' made by the taxpayer in an income year. Section 100-20 of the ITAA 1997 states that a taxpayer makes a capital gain (or loss) only if a 'CGT event' happens.
Division 104 of the ITAA 1997 sets out all the CGT events for which a taxpayer can make a capital gain or loss. Under section 104-10 of the ITAA 1997, CGT event A1 happens, in relation to a taxpayer, if the taxpayer disposes of a 'CGT asset'.
You dispose of a CGT asset if a change in ownership occurs from you to another entity, whether because of some act or event or by operation of law.
The time of the event is when you enter into the contract for the disposal.
In your case, you entered into the contract to sell your investment property in the relevant financial year. Therefore, the relevant financial year is the year in which the CGT event occurred and any capital gain needs to be included in your assessable income for taxation purposes in relevant financial year; not the year in which settlement occurred.
Interest
Interest income is regarded as ordinary income and therefore assessable under section 6-5 of the ITAA 1997.
Income is assessable, for income tax purposes, when the person is taken to have derived it. The term derived is explained in subsection 6-5(4) of the ITAA 1997 to mean that the amount is derived when it is received or applied or dealt with in any way at the person's direction.
Taxation Ruling TR 98/1 sets out the Commissioner's guidelines on the cash or accruals methods for the treatment of income. In the case of interest or investment income, the general principle is that it is only derived, or arises, when it is received or credited (paragraph 47).
In your case, you did not receive the interest accrued on the deposit monies until the subsequent financial year. Therefore, the interest income needs to be included in your assessable income for taxation purposes in the subsequent financial year.