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Edited version of your private ruling
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Ruling
Subject: Capital Gains Tax
Question 1
Can the taxpayer defer including a capital gain in relation to the sale of a commercial property until settlement or change of ownership occurs?
Answer
Yes
Question 2
Where the taxpayer amends an earlier tax return to include the capital gain in the year of contract, will any shortfall or general interest charges that may arise be remitted where the amendment is made within one month of settlement?
Answer
Decline to rule
This ruling applies for the following periods:
1 July 2010 to 30 June 2011
The scheme commenced in:
2010
Relevant facts and circumstances
The taxpayer owns a property. The property includes both freehold land and attached buildings.
The taxpayer entered into a contract to sell the above mentioned property to the buyer.
The contract of sale of real estate was signed in the 2011 income tax year. Settlement of the property is due to occur in a later income tax year. The purchaser has paid a percentage deposit with the balance payable on settlement.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Taxation Administration Act 1953 Schedule 1 Subsection 359-35(2)
Reasons for decision
Question 1
Under section 104-10 of the Income Tax Assessment Act 1997 where a property that is not a main residence is sold, a capital gains tax event (CGT event A1) occurs at the time that the contract is signed. Therefore, any capital gain realised must be included in the taxpayer's income tax return in the income year that the contract is signed.
Generally, settlement of a property occurs at a later date and in some cases that date occurs in a later income year to the signing of the contract.
Where the contract is settled in a later year of income the taxpayer is required to include a capital gain or capital loss in the year of income in which the contract is made, not in the year of income in which the contract is settled. This is the Commissioner's view in Taxation Determination TD 94/89.
Where the income tax assessment for the year in which the contract was made has already issued it will be the taxpayer's responsibility to amend the assessment once settlement has occurred.
In this case, the taxpayer signed the contract in the 2011 income tax year and the settlement date will be in a later year of tax. Any capital gain or loss will need to be included in the 2011 income tax return. However the taxpayer would not be required to amend that return until the time of settlement.
Question 2
Subsection 359-35(2) of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that a private ruling does not have to be given if making the ruling would prejudice or unduly restrict the administration of the taxation law. This includes the situation where the application relates to issues that do not affect the taxpayer's income tax liability.
TD 94/89 states that:
Where an assessment is amended to include a net capital gain, and a liability for interest arises under section 170AA(1), the remission of interest will be dealt with in each case on its own merits. We would expect, however, that the discretion in subsection 170AA (11) would ordinarily be exercised to remit the interest in full where requests for amendment are lodged, and where relevant self-assessments are made within a reasonable time after the date of settlement. In most instances, we would consider a period of one month after settlement would be a reasonable period.
The Commissioner looks at each case individually and makes a decision based on the merits of each case.
The merits of a particular case cannot be determined beforehand as the relevant factors that need to be considered cannot be accurately known until then.