Edited version of private advice

Authorisation Number: 1052005640137

Date of advice: 14 July 2022

Ruling

Subject: Capital gains tax

Question 1

Once settlement takes place, is the time of the CGT event when you entered into the sale contract with an amendment required to your 20XX-XX income tax return?

Answer

Yes.

Subsection 104-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that a CGT event A1 happens if you dispose of a CGT asset.

Paragraph 104-10(3)(a) of the ITAA 1997 states that the time of the event is when you entered into the contract for the disposal.

You have entered into sale contracts for lots B and C. These lots will not be transferred to the purchaser until settlement occurs in a future income year.

There will be no change in ownership legally or beneficially to the purchaser until settlement takes place.

Settlement cannot occur until all of the relevant works and approvals are finalised.

The CGT event will crystalise once settlement has occurred. Then you should go back and amend the tax return for the income year the contract was entered into.

Question 2

If settlement of the contracts occurs outside the amendment period does the Commissioner have the power to amend the relevant income tax return to include a capital gain or loss that may arise from the sale of lots B and C?

Answer

Yes.

Subsection 170(10AA) of the Income Tax Assessment Act 1936 (ITAA 1936) gives the Commissioner the power to amend the return.

It states that nothing in this section prevents the amendment, at any time, of an assessment for the purpose of giving effect to any of the provisions of the ITAA 1997 set out in this table.

Included at Item 30 of the table is subsection 104-10(3) of the ITAA 1997 with the description: 'The time of a CGT event is decided by there being a contract entered into.'

Therefore, the Commissioner is able to amend the relevant income tax return to include any capital gain or loss arising from the sale of lots B and C after settlement.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

XX July 20XX

Relevant facts and circumstances

You and your spouse jointly own the property.

You and your spouse purchased the property more than a couple of decades ago.

You and your spouse built a house on the property and moved into it and used it as your main residence.

You and your spouse intend to subdivide the existing property into 3 lots (A, B and C), sell the 2 vacant lots (lots B and C) and continue to reside in your existing residence on lot A.

Contracts for sale of the 2 vacant lots were entered into during the 20XX-XX income year.

Settlement of the sale of proposed lots cannot occur until the State Planning Commission approves the development and issues Titles to the new lots. In other respects, standard conditions in regards of the sale of land apply.

Due to the current state of the building industry the required works necessary to obtain Planning Commission approval have not yet been started. The works proposed are the minimum works required to achieve Planning Commission approval.

Consequently, settlement of the contracts is yet to occur and will only occur in a subsequent financial year.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1936 subsection 170(10AA)