Edited version of private advice

Authorisation Number: 1052398898869

Date of advice: 20 May 2025

Ruling

Subject: Capital gains tax event

Question 1

Are you required to declare the capital gain in the relevant income year when the contract was signed?

Answer 1

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You signed a contract to sell in a prior year.

The settlement date for the sale of the unit occurred in the following financial year.

In the year of the contract your spouse suffered a number of medical episodes.

They have not recovered and has since been placed in care.

During this period, your family and you experienced immense emotional shock and were heavily preoccupied with providing care and support for your spouse.

This required significant time, resources, and effort, which affected your ability to focus on other matters.

Faced with mounting financial pressures caused by your spouse's health condition, your family decided to sell your property to cover accumulating healthcare bills and alleviate the burden of paying the mortgage on the property solely on your income.

You received an offer to purchase the property, and you were under considerable pressure to accept the offer by the end of that business day.

The buyer signed the contract, and you signed it on the day after the buyer had signed it.

At the time, you were unaware that the contract signature dates determined the tax calculations for capital gains.

You genuinely believed that the transaction would be applicable to the following tax year, as that was the year the property was sold.

You were overwhelmed and vulnerable, managing the demands of running your business, attending medical meetings at the hospital, and preparing the property for listing while coping with the immense stress of the situation.

Under duress, you accepted the unconditional offer, prioritizing the immediate financial relief it provided.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Reasons for decision

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

A legislative example is provided in section 104-10(3) of the Income Tax Assessment Act 1997 as follows:

Example:

In June 1999 you enter a contract to sell land. The contract is settled in October 19XX. You make a capital gain of $XX.

The gain is made in the 19XX income year (the year you entered the contract) and not the 19XX 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? Sets out the Commissioner's position that it is the contract date when the CGT event arises.

The CGT arose in the financial year when you signed the contract of sale to sell your unit.

The Commissioner acknowledges that you were going through some difficult personal circumstances at the time you signed the contract.

There is no discretion under the legislation to allow you to declare the capital gain in the following financial year.

The capital gain must be declared in the financial year when you signed the contract of sale.

The Australian Taxation Office administers the law they do not make the law and can only apply the legislation as it stands to your circumstances.