Edited version of private advice

Authorisation Number: 1052110221197

Date of advice: 21 April 2023

Ruling

Subject: Capital gains tax

Question

Can you defer reporting the capital gain until you receive full payment for the property?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 2024

The scheme commences on:

1 July 2023

Relevant facts and circumstances

You signed the contract for sale for the property several months ago.

At the end of the financial year, you will have only received a non-refundable deposit for the property for a portion of the sale price.

The capital gain will be greater than the amount received.

The balance of the sale will be received on settlement which is expected in a later financial year.

You will not receive any payments by instalments prior to the settlement date.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Reasons for decision

You make a capital gain or capital loss as a result of a capital gains tax (CGT) event happening to an asset in which you have an ownership interest.

You dispose of an asset when a change of ownership occurs from you to another entity. When property is disposed of under a contract, CGT event A1 occurs. The time of the event is when the contract is entered into.

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? provides the Commissioner's view as to the year of income you are required 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TD 94/89 refers to repealed subsection 160U(3) of the Income Tax Assessment Act 1936 (ITAA 1936). It was replaced by paragraph 104-10(3)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) which has the same meaning as the repealed section. Therefore, the Commissioner's views expressed in TD 94/89 apply equally to the equivalent provisions of the ITAA 1997.

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 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.

Although it is not required, you may, for convenience, include the capital gain or capital loss from the disposal of the property in your return for the income year in which the contract was entered into if you lodge that return before settlement occurs.

In your case, the contract for sale of the property was signed several months ago. Settlement will take place in a later financial income year.

Therefore, the date of the disposal of the property will be in the current financial year, and a capital gain will be derived by you in a later financial year.

You are required to include the capital gain in your return for the current financial 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 later financial year.

You will need to amend your current financial year tax return once this final settlement payment is received.