Edited version of your written advice

Authorisation Number: 1012924863763

Date of advice: 8 December 2015

Ruling

Subject: CGT - disposal - SIC remission

Question 1

When land is disposed of under a contract is the capital gain or capital loss included in your assessable income for the income year in which the contract was entered into?

Answer

Yes

Question 2

Are you required to include the above capital gain or capital loss in your assessable income for the relevant income year before an actual change of ownership occurs?

Answer

No.

Question 3

Will the Commissioner grant an extension of time to lodge an objection against your assessment when the settlement occurs outside the two year period of review?

Answer

No, as an extension is not required

Question 4

Will the Commissioner remit any interest or penalties imposed when the assessment is amended to include the capital gain after settlement occurs?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

Year ending 30 June 2020

The scheme commences on:

After 20 September 1985

Relevant facts and circumstances

You purchased the property after 20 September 1985.

The property is land of more than 10 hectares. X, hectares of this land contains your main residence.

You jointly own equal shares in the property.

A contract of sale was entered into and signed during the relevant income year.

The purchase price will be paid by four instalments over a four year period with the final payment of the outstanding balance being made on settlement date.

The settlement date of the contract is four years from the contract date.

The land title will not transfer until the final settlement payment is made. The purchaser will not have use of the land until the final settlement payment is made.

You will lodge an amendment to your relevant assessment within one month of the settlement date.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1936 Section 170

Taxation Administration Act 1953 Schedule 1, Section 280-100

Taxation Administration Act 1953 Schedule 1, Section 280-160

Reasons for decision

Questions 1 and 2

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 is made, 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.

In your case, the contract for sale of the land was signed during the relevant income year. Various instalments will be made until the final settlement payment is made in the specified income year. Therefore, the date of the disposal of the property will be in the relevant income year, and a capital gain or loss will be derived by you in that year. You are required to include the capital gain in your return for the relevant income year; however you do not need to include that capital gain until settlement occurs, that is, after you receive the final settlement payment in the specified income year.

Question 3

Section 170 of the Income Tax Assessment Act 1936 (ITAA 1936) outlines the situations where the Commissioner may amend an assessment. Generally, an individual taxpayer, subject to a number of exceptions, is entitled to a two year period of review.

The table in subsection 170(10AA) of the ITAA 1936 lists a number of situations where the two year period of review does not apply, and the Commissioner may amend the assessment at any time. Item 30 of the table allows the Commissioner unlimited time to amend an assessment to give effect to section 104-10 (3) of the ITAA 1997, that is, the occurrence of a CGT disposal when a change of ownership occurs.

As the Commissioner may amend an assessment at any time to give effect to this section, an extension of time to object to the assessment is not required.

Question 4

The Commissioner's guidelines on the remission of SIC are outlined in Law Administration Practice Statement PS LA 2006/8 Remission of shortfall interest charge and general interest charge for shortfall periods. Paragraph 35 of PS LA 2006/8 states that the extent of the remission must take into account the individual circumstances of a case and the extent to which factors beyond your control were responsible for the size and duration of the shortfall. It states at Paragraph 40 that the SIC and GIC (interest charges) are intended to restore a fair balance between taxpayers, ensuring that taxpayers who have paid tax on time are not disadvantaged relative to those who had the benefit of the tax shortfall until the amended assessment.

Our view in relation to remitting interest in circumstances of delayed settlement is set out in 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? Paragraph 5 of TD 94/89 explains that where 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. According to TD 94/89 a reasonable time is considered to be a period of one month after settlement.

In your case, it is considered that the fact that settlement will not occur until the specified income year is beyond your control. It is therefore appropriate for the Commissioner to remit the SIC provided the amendments are lodged within 30 days of settlement occurring.