Tax. Contract date or Settlement

Discussion in 'Accounting & Tax' started by leicachamp, 15th May, 2020.

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  1. leicachamp

    leicachamp Well-Known Member

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    I know this has been asked before and from what i remember the answer is contract date.
    If this is correct how does ato calculate the tax? For eg: contract date is 2020 but settlement is 2023. Does the ATO tax me based on my 2020 income? Or do i have to pay tax in year 2020 even though i have not settled or received the funds?

    I want to sell one of my personal properties to my Son. But because of Covoid 19 I dont think he can get a loan til late next year. 12 - 19 months away. But for me writing the contract this Tax year is great because of my low tax bracket this year. So i was thinking of writing a sales contract with 18 mths settlement before June 30.

    Thanks for any input.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    You will have to pay the tax in 2020 but if it doesn't settle apply to amend the return.
    There is a concession to not pay the tax until the settlement however.
     
  3. FredBear

    FredBear Well-Known Member

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    Related question: I'm finalizing sale of PPOR now. Settlement date could be in late June or early July. Having it in June is somehow cleaner, as both contract and settlement are in the same year. Are there any advantages or disadvantages of having settlement in the next tax year to be aware of?
    Also planing to dump some of the proceeds into super, $100k this year and $300k next year, plus offset some of the CGT with around $45k concessional ($25k this year and $20k left over from last year).
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    None that I can think of other than the delay in getting the proceeds.
     
  5. Mike A

    Mike A Accountant Business Member

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    it depends on whether the sale is on revenue account or capital account. without knowing the history of your property it could be either but your adviser will know.
     
  6. FredBear

    FredBear Well-Known Member

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    Thanks Terry! As an expat one consideration is the 12.5% (or less if a variation is obtainable) deducted from the sale price by the buyer and sent to the ATO. My assumption is that you would have to claim this back (if it is more than the CGT payable) in the same tax year as the contract date. A long settlement as in the original post would mean the concession to delay the tax until settlement could be useful.
     
  7. Mike A

    Mike A Accountant Business Member

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    Expat ? If you have been an expat then you may not get the full 50% cgt discount
     
  8. FredBear

    FredBear Well-Known Member

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    Yes I know :(
    Extra super contributions can help :)
     
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  9. Mike A

    Mike A Accountant Business Member

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    that is true. could be worse. the cgt event could occur after 30th june
     
  10. leicachamp

    leicachamp Well-Known Member

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    Thanks Terry.

    your info is really helpful!
     
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  11. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Just dont contribute to a smsf if non resident. Also depending on your age the downsizer contribution could be a matter to consider. This is $300K per taxpayer iand sits outside the concessional, non-concessional and catch up caps.
     
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  12. FredBear

    FredBear Well-Known Member

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    Thanks Paul - I just use a couple of retail/industry funds. Usual suspects, AMP and AusSuper. Multiple accounts to keep concessional/non-concessional separate.
    Good point that smsf are problematic if you are a non-resident.
    Not (yet) quite old enough for the downsizer contribution. Currently sliding down the slope between being "preserved" and "superannuated" :)