CGT - On settlement or when contracts exchange?

[FrankGrimes]

Hi all,

Lets say I have an IP that I sell in March, contracts exchange and deal has gone unconditional. However actual settlement is in July.

Which year would CGT apply?

 

[Raddles]

Hi there
I may be absolutely wrong but my understanding the date of the contract is the relevant date rather than the settlement date - it is with shares.
thanks

 

[sue78]

I asked about this before. I think if you want to pay tax in July then you can do an options contract or something i.e option to buy then sign contract in July and settlement in july just for tax purposes.

 

[Mry]

The year that March fell into. The CGT event applies when the contracts are signed.

 

[Jom]

Sorry to resurface old thread.

Does this mean that the 12 months (for which you must own a property before paying 50% CGT) starts from the date the contact is signed to buy it in the first place?

 

[Pushka]

Yes, that's my understanding. Will do a check and see if I can find it here and post it later.

 

[Jom]

Yes, that's my understanding. Will do a check and see if I can find it here and post it later.

Much appreciated Pushka - I can't make head nor tail of what the ATO website says.

 

[Pushka]

OK, this mighn't help you then:

http://www.ato.gov.au/taxprofessionals/content.asp?doc=/content/54986.htm&mnu=37180&mfp=001/005

1.5 Is the contract date or settlement date relevant for determining whether, for CGT purposes, I have purchased or sold a property?

Your client will be taken to have acquired or disposed of their property for CGT purposes when they enter into a contract to purchase or sell it. In some States this is the time when contracts are exchanged, in others it is the time when both parties sign the contract.

If your client is selling a property this means that they should include their capital gain or loss in their income tax return for the income year in which they enter into the contract – not the income year in which the settlement takes place. However, your client is not required to do to this until an actual change of ownership of the property happens (at settlement). If your client already has an income tax assessment for the year in which the contract was entered into, they may need to have that assessment amended.

 

[Jom]

OK, this mighn't help you then:

http://www.ato.gov.au/taxprofessionals/content.asp?doc=/content/54986.htm&mnu=37180&mfp=001/005

1.5 Is the contract date or settlement date relevant for determining whether, for CGT purposes, I have purchased or sold a property?

Your client will be taken to have acquired or disposed of their property for CGT purposes when they enter into a contract to purchase or sell it. In some States this is the time when contracts are exchanged, in others it is the time when both parties sign the contract.

If your client is selling a property this means that they should include their capital gain or loss in their income tax return for the income year in which they enter into the contract – not the income year in which the settlement takes place. However, your client is not required to do to this until an actual change of ownership of the property happens (at settlement). If your client already has an income tax assessment for the year in which the contract was entered into, they may need to have that assessment amended.

Hi Pushka

Thanks so much for finding that information for me.

The way I read that means that the necessary 12 months of ownership to avoid 100% capital gains takes place between the date I signed the contract to buy it and the date I sign the contract to accept an offer.

So, in my case,
I signed the contract to buy on 6 Sept 07
Settled on 23 OCt 07

I have a buyer who has made a verbal offer on the house and is wanting to put it in writing tomorrow. If I sign that contact tomorrow (29 Sept 08), that means that there's been over 12 months (12 months and 3 weeks) since "acquiring" the property and the "CGT event" taking place? Therefore only have to pay the 50% CGT...

Am hoping that i've understood this correctly?

 

[Pushka]

Yep, that is what my accountant said to me, but just in case, get an accountant in your State that it is ok. I suspect it will be fine because signing usually happens after exchange. Or maybe even give the ATO a call and document it!

 

[Jom]

Yep, that is what my accountant said to me, but just in case, get an accountant in your State that it is ok. I suspect it will be fine because signing usually happens after exchange. Or maybe even give the ATO a call and document it!

Thanks heaps

 

[Pat]

Hi Jom,

Your dates are correct so you will get a 50% discount for CGT.