Edited version of private advice

Authorisation Number: 1012629400433

Ruling

Subject: Capital gains tax

Questions and answers:

1. Will the Commissioner confirm the correctness of your CGT calculation?

Withdrawn in favour of oral guidance.

2. Will the Commissioner exercise his discretion to remit any interest penalty applicable on the amendment of your income tax assessment to include your capital gain?

Yes.

This ruling applies for the following periods:

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

The scheme commences on:

1 July 2013

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.

You and your spouse jointly purchased a property from your parents post 20 September 1985.

After a number of years you signed a contract to dispose of the property.

Contained with the contract were special conditions in relation to a delayed settlement.

You granted the purchaser an extension on the final settlement date which you now anticipate will be in a number of years.

Once settlement occurs you will amend your income tax assessment within one month of the final settlement to include any capital gain.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 104-10

Reasons for decision

Question 1

Subsection 359-10(3) of Schedule 1 to the Taxation Administration Act 1953 provides that an applicant for a private ruling may withdraw the application at any time before it is made.

You notified the Commissioner orally on dd/mm/yyyy of your intention to withdraw Question 1 from your private ruling application. As a ruling had not been made by this date, your request is valid and this question has been withdrawn in favour of oral guidance.

Question 2

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. Section 108-5 of the ITAA 1997 lists land and buildings as CGT assets.

Under section 104-10 of the ITAA 1997, a CGT event A1 occurs when you dispose of the CGT asset to someone else. The time of the event is when the contract is entered into. You make a capital gain if the capital proceeds from the disposal are more than the assets cost base. You make a capital loss if those capital proceeds are less than the assets reduced cost base.

Taxation Determination TD 94/89; Income tax: capital gains: in what year of income is a taxpayer required for tax purposes to include a capital gain or loss in relation to land disposed of under a contract which is made in one year of income, but which is settled in a later year of income?, provides the Commissioners view as to the year of income you are required to include a capital gain or loss in relation to land disposed of under a contract which is made in one year of income, but which is settled in a later year of income.

Tax Determination 94/89 provides that where the contract is settled in a later year of income, you are required to include a capital gain or capital loss in the year of income in which the contract was entered into, not in the year of income in which the contract is settled. However, you are not required to include any capital gain or capital loss in the appropriate year until an actual change of ownership occurs.

Settlement effects a change of ownership and a disposal. When settlement occurs, you are required to include any capital gain or capital loss in the year of income in which the contract was made. If an assessment has already been made for that year of income, you may need to have that assessment amended.

Interest liability

Paragraph 5 of Tax Determination TD 94/89 provides that where a settlement takes place in a later year than when the contract to dispose of the land was entered into and an assessment is amended to include a net capital gain in the abovementioned circumstances, the discretion to remit general interest charge would ordinarily be exercised providing requests for amendments are made within a reasonable time after the date of settlement. Under TD 94/89 a reasonable time is considered to be a period of one month after settlement.

In your case, you signed a contract to dispose of your property in one income, however final settlement will not occur until a future income year. Provided that you amend your assessment for the income year that the contract was entered into to include any capital within one month of final settlement, the Commissioner will exercise the discretion under subsection 170AA(11) of the ITAA 1936 and remit any interest applied in full.