Edited version of private advice

Authorisation Number: 1051925190104

Date of advice: 26 November 2021

Ruling

Subject: CGT - timing of CGT event

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. Capital Gains Tax (CGT) event A1 occurs when you dispose of a CGT asset. In this case, CGT event A1 happened to the land when the contract is entered into, during the income year ending 30 June 20XX.

Question 2

Are you required to include the capital gain from the CGT event A1 in the assessable income and income of the trust estate of the XX Trust (the Trust) for the relevant income year before a change of ownership occurs?

Answer

No. In your case, your circumstances align with the requirements 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? (TD 94/89). It provides that a taxpayer is not required to include any capital gain or loss in the appropriate year until an actual change of ownership occurs. Settlement effects a change of ownership and a disposal. When settlement occurs, the taxpayer is then required to include any capital gain or loss in the year of income in which the contract was made. If an assessment has already been made for that year of income, the taxpayer may need to have that assessment amended. In your case, you stated an intention to amend the 20XX tax return of the Trust when settlement occurs in a later year and make trust distributions to XX accordingly.

Question 3

Are the beneficiaries of the Trust required to include the capital gain from the CGT event A1 in the assessable income for the relevant income year before a change of ownership occurs?

Answer

No. In line with the response at Question 2, the beneficiaries of the Trust will not be required to include the capital gain as income until a change of ownership occurs.

Question 4

On the basis that the answers to the question 2 and 3 are no, will the Commissioner remit penalties and interests apply to the amended assessments in question 2 and 3?

Answer

For the circumstances of this case, penalties would not be applied to the taxpayer-initiated amendments. Remission of interest is dealt with in each case on its own merits, but if the amendment occurred within one month of settlement, the Commissioner would ordinarily remit any interest charges.

Please note that in your case there is no time limit to amend the net CGT of the 20XX income tax returns as per subsection 170(10AA) of the Income Tax Assessment Act 1936.

This ruling applies for the following periods:

Income year ending 30 June 20XX to income year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The XX Trust (The Trust) was established in XX 20XX.

The Trust raised funds through XX. The funds were used for the acquisition of a farming property at XX (the Property). The Property was used as a farm during its ownership predominately by renting/licensing the use of the property to third parties. As such, the Property has always been held on Trust's capital account.

The trustee of the Trust entered a contract of sale (the Contract) with a third party on XX 20XX for the disposal of the Property.

The Contract set out that the proceeds of the sale will be paid in accordance with the below schedule:

•         X% of the purchase price on signing.

•         X% of the purchase price XX months after signing; and

•         Balance (X%) on XX 20XX (the Final settlement payment).

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

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Taxation Administration Act 1953 section 8AAB

Taxation Administration Act 1953 section 8AAG

Income Tax Assessment Act 1936 subsection 170(10AA)