What date is CGT calculated?

Hi Brains Trust

I believe, many many moons ago, I read the answer but doesn't hurt to double check and re-ask.

We have already sold an IP in this financial year, hence up for CGT. Our real estate agent, contrary to instructions, put a second IP on the market this weekend - we had told him to wait until end of financial year but he was concerned it would take longer to sell due to the market quieting down.

Typically - first day on market and pretty darn good offer.

Is CGT calculated from exchange of contract - or from settlement? I suspect, from memory, it's exchange of contract which would mean darn and bugger and we'd have to delay exchange (otherwise CGT will be horrendous) and risk losing the buyer.

Mutter mutter real estate agents!

 

We were told definitely contract date.

We delayed signing a contract until 2nd July to defer CGT. Sale all agreed but we would not sign in June, assured the buyer we would honour the agreement, which we did. Buyer was quite anxious.

 

That's what I thought. Only need less than 2 weeks delay ... will chat to agent, get them to explain to buyer and can offer assurance letter if required.

Conveyencer could waffle a delay for a week, but 10 days might be a bit long

 

Thanks Simon/Terry for pinning that old thread. Thought so ... offer'er is happy to wait until 1st July, in meantime agent will see if they can get a little higher

 

You can become difficult to contact for a few days followed by a few tweaks on negotiation followed by delayed signing when you get back from that emergency that took you away.

 

It will likely be in the year the contract is signed if on capital account and the contract is not subject to something else happening.
Tax Tip 214: At what date is CGT Triggered? Part 1

 

From discussing with my lawyer it will be calculated in the financial year the contract is dated so if you dont want to pay CGT this FY you need to have it dated July 1st.

 

That is not what the law says.
s104-10 ITAA97
(3) The time of the event is:

(a) when you enter into the contract for the disposal; or

(b) if there is no contract--when the change of ownership occurs.

 

Doesn't this mean when the contract is signed and binding? You better check your understanding because I called the ATO like 3 days ago to confirm as well.

Its quite clear on the ATO website as well.
CGT events

"If there is a contract of sale, the CGT event happens when you enter into the contract. For example, if you sell a house, the CGT event happens on the date of the contract, not when you settle.

 

You said it was when the contract was dated, which is incorrect.

 

If a buyer signs a contract (offer) on 28th June and the vendors sign the contact on 1st July which date applies ?

Tax law :

s104-10 ITAA97
(3) The time of the event is:
(a) when you enter into the contract for the disposal; or
(b) if there is no contract--when the change of ownership occurs.

So when "you" enter into the contract is 1st July. Its perfectly OK to tell the selling agent to tell the proposed buyers that the vendors will not sign a contract until 1st July as they seek to avoid triggering tax too soon. You also dont want an agreement to later make a contract as in some states that could be as binding as a signed contract. Your solicitor should advise. If you dont reject the offer and its not subject to buyer conditions on expiry its not a rejection. Its not a contract either. Its a offer that isnt rejected that may be accepted on the 1st of July.

 

some people also date contracts differently to when they were signed. If it come down to the line it would be the date of exchange, for NSW property, I think.

imagine signing 28 June to sell and the vendor signed 30 June at 4.59pm but exchange happened on 1 July.

 

First, there must be a contractual obligation. The date you as the vendor ENTER into that contractual obligation is relevant. Not when it become enforceable or unconditional. Where two contracts are exchanged it MAY be that time however in some states the process is different. It could be when a vendor accepts a offer that was made in the form of a contract. Comes down the the nuts and bolts of contract law and perhaps the state...Offer and acceptance make a contract. This must be considered from the perspective of the VENDOR not the buyer.

CGT event A1 by contract is also conditional. The sale must eventuate and settle. Otherwise the CGT event didnt occur. A contract which fails may not be a CGT event A1 (disposal) if there is no disposal.

If in doubt ask your solicitor.

 

@Lizzie so what eventuated? buyer ducked out or signed on 1st july?

 

Signed the end of the first full week of 2022/23 - and settles mid next month

 

congrats. great the buyer didnt run away. promise by word of mouth is often worthless as i learned hard way in past so glad it worked out for you