Edited version of private advice

Authorisation Number: 1052250117730

Date of advice: 13 May 2024

Ruling

Subject: CGT - defer payment on the sale of property

Question 1

Can the trustee of Trust A and the beneficiary defer reporting the capital gain on the sale of a property in their income tax assessments for the income year ending 30 June 20XX until settlement occurs?

Answer

Yes.

Question 2

Can all General Interest Charges and/or penalties be waived or fully remitted, providing an amended tax return is lodged within 30 Days of the final settlement date when the bulk of the sale proceeds will be received?

Answer

Decline to rule.

This ruling applies for the following period:

Financial year ended 30 June 20XX

The scheme commenced on:

XX June 20XX

Relevant facts and circumstances

Trust A owns a property (the Property).

Company B (the Trustee) is the Trustee for Trust A.

Individual C is the beneficiary of Trust A which owns the property. Individual C is also the director of the Trustee.

The contract was signed to sell the Property by Individual C, as director of the Trustee, on XX June 20XX (the date of exchange).

The contract allowed for a deposit to be paid on signing and the balance of the deposit to be paid at the expiration of XX days from the date of exchange, being the conclusion of the due diligence period.

A final instalment being the balance of the price to be paid at the expiration of XX months from the date of exchange.

The Trustee made a resolution which stated Individual C's distribution was XX% of the net franked dividends, share of the net capital gain, and share of the distributable surplus. There are no other beneficiaries.

The Trustee has not made a choice, and does not intend to seek approval from the Commissioner to make a choice, to be assessed on the capital gains under section 115-230 of the Income Tax Assessment Act 1997.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10(3)

Tax Administration Act 1953 section 357-110

Reasons for decision

All legislation references are to the Income Tax Assessment Act 1997 unless stated otherwise.

Question 1

Summary

The Trustee of Trust A and the beneficiary can defer the capital gain on the sale of a Property in their income tax assessments for the income year ending 30 June 20XX until settlement of the contract occurs.

Detailed reasoning

The time that CGT event A1 happens is when the taxpayer enters into the contract for the disposal of the CGT asset.

A legislative example is provided in section 104-10(3) as follows:

Example:

In June 1999 you enter into a contract to sell land. The contract is settled in October 1999. You make a capital gain of $50,000.

The gain is made in the 1998-99 income year (the year you entered into the contract) and not the 1999-2000 income year (the year that settlement takes place).

This example illustrates that, where a contract is entered into at a different time to when it is settled, it is the time that the contract is entered into that is relevant. The time of settlement is in effect ignored.

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? at paragraph 3 explains 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.

Application to your circumstances.

Settlement of the contract for the sale of the Property is scheduled to occur in June 20XX. At this time, if they have not already included the gain in their income tax assessment, the Trustee and the beneficiary will be required to amend their income tax assessments for the income year ending 30 June 20XX to include the capital gain made, as CGT event A1 happened to the Property when the sale contract was executed.

TD 94/89 at paragraph 5 states where an assessment is amended to include a net capital gain, and a liability for interest arises under subsection 170AA(1), the remission of interest will be dealt with in each case on its own merits. This paragraph makes clear that this amendment must be made within a reasonable time after the date of settlement. In most cases, we would consider a period of one month after settlement to be a reasonable period.

Question 2

Summary

The Commissioner declines to rule on this question as it requires the Commissioner to rule based on assumptions about future events or other matters (section 357-110 Tax Administration Act 1953).

As the guidance in paragraph 5 of TD 94/89 explains, where an assessment is amended to include a net capital gain and a liability for interest arises, the remission of interest will be dealt with in each case on its own merits.

The Commissioners discretion to remit interest would ordinarily be exercised to remit the interest in full where requests for amendment are lodged, and where relevant, self-amendments are made, within a reasonable time after the date of settlement. In most cases, we would consider a period of one month after settlement to be reasonable period.

The Commissioner is unable to make any decision on the remission of interest charges and/or penalties until such a time as a liability for interest and/or penalties arise. If interest charges or penalties do arise, a taxpayer is able to request a remission of these by following the relevant process that is in place and published on the ATO website at the time that they arise.