Tax Tip 32: Delay paying CGT and save interest

@Terry_w
Can you please elaborate a little more on the CGT delay if I sell on 1 July?

I assume you go with contract date (ie: the date contract is exchanged) rather than settlement date?

So if I sell a property and I exchange contract with buyer on 1 July 2016, when do I need to pay CGT? In which tax return ie: 2016/2017 tax return or 2017/2018 tax return? Thanks

 

If a contract is made on 30June 2015 and you use a tax agent the tax due is payable May 2016. If the property is contracted to sell on 1st July the tax is payable on 15th May 2017.

Contract one day later = Payment 366 days later (Feb 2016 = leap year).

 

If you sold 01 July 2016 then the income would be declared in the 2016-2017 tax return which would be due in Oct 2017, but you may be able to extend this out to march 2018 under limited circumstances.

 

Delaying exchange may not satisfy the CGT tests. If both parties intended unconditional when it could be date when contract is entered into or when cooling off ends. Beware of contracts with extended exchange periods.

 

If there is a long settlement, would you be required to pay CGT before you receive the full amount of money.> What about if the sale falls through and you dont get paid but have paid the CGT to the government?

 

If a sale falls through the capital proceeds may be reduced to $0.
CGT events can be amended out of time in many cases. - Its actually more complicated than that.

There is also a little understood concession available for long dated settlements that can SOMETIMES be used to delay paying the tax. Many tax advisers lack understanding of this one. I have used in many time to delay tax payments.

ATO says :
Although you report your capital gain or loss in the tax return for the income year in which the contract is entered into, you're not required to do this until settlement occurs. If settlement occurs after you've lodged your tax return and been assessed for the relevant income year, you'll have to request an amendment.

Loads of non-property savvy tax advisers tell their clients that CGT means you have to pay tax before you get the proceeds...Thats plain wrong.

eg Contract signed 20 June 2015. Settlement is agreed to be 30 June 2017. Final settlement occurs on 10 July 2017. 2015 tax is lodged WITHOUT a CGT event. Then in July 2017 the 2015 tax is amended to include the CGT event and the extra tax is due and payable immediately. Write to ATO and seek the concession and interest is remitted if the amendment is made promptly - reason is you have an uncertainty to the CGT event and amounts until final settlement. The 2 year / 4 year time limits to amend are waived for this concession - Like earnout clauses for a business sale.

 

Note how Paul underscored the July - the ATO will want the amended tax return within 30 days after the long settlement.