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Edited version of your written advice
Authorisation Number: 1012717580024
Ruling
Subject: CGT - main residence and payment by instalments
Questions
1. Will you be liable for capital gains tax (CGT) on the sale of the property in the year the contract is signed?
Answer: Yes.
2. Will you be eligible for the main residence exemption on a portion of the property?
Answer: Yes.
3. Will you be liable for CGT on the remaining property?
Answer: Yes.
This ruling applies for the following period:
Year ended 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
After September 1985 you purchased more than two hectares of land.
The property has always been your main residence.
You have received an offer for the sale of the land. It contains a payment plan schedule which is to be adhered to by the purchaser.
The property sale will not settle in the same year that the contract is signed.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10 ,
Income Tax Assessment Act 1997 Section 108-5(1) and
Income Tax Assessment Act 1997 Section 118-110 .
Reasons for decision
Timing of the CGT event
Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) explains that CGT event A1 happens if you dispose of a CGT asset that you own. You are taken to have disposed of an asset if there is a change of ownership of the asset from you to another entity. The time of the event will normally occur at the time that you enter into the contract for the disposal or if there is no contract, when the change of ownership occurs.
Taxation Determination TD 94/89 discusses the situation where a contract is made in one income year, but settles in another income year. Paragraph 1 states:
Where the contract is settled in a later year of income, a taxpayer is required to include a capital gain or loss in the year of income in which the contract is made, not in the year of income in which the contract is settled.
In your case, you will sign a contract for the disposal of a property, but will receive payment instalments over multiple years.
Therefore, regardless of the timing of the payments received for the disposal, the CGT event date is the date the contract will be signed and accordingly the year in which you will be liable for CGT on the disposal.
Main residence exemption
Section 118-110 of the ITAA 1997 states that you can disregard any capital gain or loss realised on the disposal of a dwelling that was your main residence for your entire ownership period. However, subsection 118-120(2) specifies that the total of the land (including the land on which the dwelling is situated) must not exceed two hectares. Where the land exceeds two hectares, you will only be entitled to a partial exemption.
In your case, you disposed of the property that included your main residence. You satisfy the requirements to obtain the main residence exemption. However, the land exceeds two hectares. Accordingly, you are only entitled to a partial main residence exemption.
The capital gain you make, calculated with reference to the total capital proceeds you received, including all payments made under the contract, will need to be reasonably apportioned between the non-exempt and the exempt portion of the property.