CGT & 50% discount - Contract or Settlement Date?

Hi,
I purchased my IP this year - Contract of Sale Date was 27th Feb 2021, Settlement was 16th April 2021. Looking to potentially sell but want to make sure I've held for 1 year to obtain the 50% CGT discount. My question is:

1. Does the 1 year "held" period start from contract sale date? So I can sell from 28th Feb 2022 onwards?
or
2. From Settlement date? So I can sell from 17th April 2022 onwards?

TIA

 

Tax Tip 214: At what date is CGT Triggered? Part 1 Tax Tip 214: At what date is CGT Triggered? Part 1

 

Generally, one year from the date of the contract.

 

Thanks Terry. The Bart example makes perfect sense and exactly what I was after.

 

The test for the owenrship period for a CGT discount is settlement to settlement. You only acquire a ownership "interest" on settlement and your ownership interest ends when it has settled. Prior to settlement you have a different cgt asset...a right. That terminates when the purchase settles generally for zero gain or loss so the new CGT asset commences on the settlement date. The sole use of the contract date is the trigger date for CGT event timing for tax purposes.

eg Fred contracts to buy on 24 Feb 2020. That sale settles on 16th May 2020. He contracts to sell the property as he wants to leave Australia forever on 29 June 2021 and it settles on 10 August 2021. He flies out of Australia on 17 July 2021 before it settles.

• Has he owned the property for "more" than 1 year?..eg a year + 1 day. Compare settlement date for acquisition with settlement for disposal...This is the ownership interst period. 16th May 2020 to 10 August 2021. Yes.
• When does Fred consider and report the CGT amount in his tax... 2021 as the contract was prior to 30 June 2021
• How will Fred report the rental income ?? He will report 2021 AND 2022 rental income and expensesdespite for tax purposes having disposed of the property in the 2021 year.
• Can Fred calam CGT costs incurred after 30 June ? Yes.
• Does the issue pose a concern as Fred is selling when he is non-resident ? No. The contract date occurred while he was a tax resident.

 

Thanks Paul. That makes sense to me as ownership transfers at Settlement. This however is different advice from others above which makes things confusing. I think i'll just use settlement to settlement for the 1 year period to be extra cautious.

 

That may not be necessary.

 

Can you elaborate?

 

have a look at my link above.

 

Yes I did, hence my point in that it's not clear. You're saying it's from Sales Contract to Sales Contract. Whereas Paul is saying Settlement to Settlement which is contradictory to your point. Who is absolutely correct is uncertain from where I stand. So if my contract was 27th Feb 2021, I'm going to play it safe and not sign any contracts until 1 year from settlement, which will be 28th April 2022. Just so I cover all bases.

 

I would look at settlement to settlement first. That is a legal interst whi may be a frst issue to consider. Then the equitable interest can be considered if that wasnt met. One benefit of asking for access to reno a new property may actually increasse the ownership period (See below)

The general tax rule is legal OR equitable interest OR a license to OCCUPY but if you have a earlier right to occupy prior to a legal interest and that allows you to make property changes you may establis a equitable interest prior to he legal interest. Equitable interests vary. eg A life interest may be granted well before a legal interest. Common with a deceased estate. It takes some time before the legal interest is granted but the death and a will may give a equitable interest.

ATO view :
When do you acquire an ownership interest?
For the purposes of the main residence exemption, you have an ownership interest in a dwelling or land you acquire under a contract from the time you get legal ownership (unless you have a right to occupy it at an earlier time). You have legal ownership of a dwelling or land from the date of settlement of the contract of purchase (or if you have a right to occupy it at an earlier time, that time) until the date of settlement of the contract of sale. This period is called your ownership period. If the dwelling is on two hectares of land or less, is your main residence for the whole of the ownership period and you do not use it to produce assessable income, the home is fully exempt.

Many misunderstand the underlined statement. It is in reference to the main residence exemption and occupancy. If it was a rental with a early acecss to conduct renovations then you can ignore the word "occupy" and consider "access" in its place.

ATO also explain it further :
Even though the settlement dates are used to calculate the period for which the main residence exemption applies, the dates you enter into the purchase and sale contracts are important.

A CGT event occurs when you enter into the sale contract. You include any capital gain on your tax return for the income year in which the CGT event occurs.

Guide to capital gains tax 2021

 

that would be very safe