Edited version of your written advice

Authorisation Number: 1012755375012

Ruling

Subject: Capital gains tax

Question 1

Is the capital gain from the sale of the land assessable in the income year in which the contract was entered into?

Answer

Yes.

Question 2

Are you required to include the capital gain from the sale of the property in your assessable income for the relevant income year before a change of ownership occurs?

Answer

No.

Question 3

If you lodge a request to amend the relevant income tax assessment within 30 days after settlement occurs, will the Commissioner exercise his discretion to remit any shortfall interest charge (SIC)?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You and your spouse own a property.

The contract of sale was entered into and signed during the 2013-14 financial year

The settlement date of the contract is several years after the date of sale.

The contract of sale specifies that the purchase price is to be paid by the instalments.

The land title will not transfer to the purchaser until the final payment is made, nor will the purchaser have use of the land prior to settlement and final payment.

Relevant legislative provisions

Taxation Administration Act 1953 subsection 280-100(1)

Taxation Administration Act 1953 subsection 280-160(1)

Reasons for decision

Question 1 & 2

In the case of the sale or other disposal of real estate, the time of the event is:

• when you enter into the contract (generally the date on the contract), not when you settle - the fact that a contract is subject to a condition, such as finance approval, generally does not affect this date

• when the change of ownership occurs if there is no contract, or

• if the real estate is compulsorily acquired - the earliest of  

• when you received compensation from the acquiring entity

• when the entity became the property's owner

• when the entity entered the property under a power of compulsory acquisition, or

• when the entity took possession of the property under that power.

Although you must include your capital gain or capital loss in the income year in which the contract was made, you are not required to do this until settlement occurs (Taxation Determination TD 94/89).

Question 3

Under subsection 280-100(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) a taxpayer is liable to pay shortfall interest charge (SIC) on an additional amount of income tax that they are liable to pay because the Commissioner amends their assessment for an income year.

The Commissioner may remit all or part of an amount of SIC if he considers it fair and reasonable to do so (subsection 280-160(1) of Schedule 1 to the TAA).

TD 94/89 sets out the Commissioner's view on the remission of the former general interest charge (GIC) as it applied to shortfall with respect of certain capital gains. The discretion was exercised under former subsection 170AA(11) of the Income Tax Assessment Act 1936 (ITAA 1936).

Paragraph 5 of TD 94/89 states that:

Where an assessment is amended to include a net capital gain, and a liability for interest arises under subsection 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-amendments are made, within a reasonable time after the date of settlement. In most cases, we would consider a period of one month after settlement to be a reasonable period.

Note that while this ruling contains references to repealed provisions, some of which may have been rewritten, the ruling still has effect.

Having considered your circumstances we consider that it would be fair and reasonable to grant full remission of the SIC applicable to the amended assessment, provided you request an amendment within 30 days of the settlement.