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Edited version of your written advice
Authorisation Number: 1012782170034
Ruling
Subject: CGT - disposal of asset
Question 1
Will capital gains tax (CGT) event A1, relating to the sale of the business, trigger in the year in which the contract is entered into?
Answer
Yes
Question 2
Can the capital gain be apportioned over the five years in which the proceeds of the sale of the business are being received?
Answer
No
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You sold your business to unrelated purchasers for $XXX,XXX.
The contract of sale was signed in 20XX.
As part of the contract, the proceeds of the sale would be paid to you in the following manner:
$XX,XXX on completion date (20XX)
$ X,XXX each month for 59 months
$ X,XXX final payment on the 60th month.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Reasons for decision
Under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gains tax (CGT) event A1 occurs when you dispose of a CGT asset to another entity. The time of the event is when the contract is entered into.
Taxation Determination TD 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.
In your case, you disposed of your business to another entity in 20XX when you entered into a contract of sale of business. CGT event A1 triggered at this time.
When settlement occurs for the sale of the business, that is when the last payment of the proceeds are received, you will be required to include the capital gain from that sale in the year in which the CGT event occurred, the 20XX-XX financial year.
If an assessment has already been made for that year of income, you may need to have an assessment amended.