There is a lot of confusion around the timing of when a capital gain is made.
The point at which a capital gain or loss is made is called a CGT Event. It is important to establish the timing of a CGT Event as it may affect how your tax liability is calculated and what financial year it should be reported in. CGT Events include the of assets, but when do they occur?
Sale of an asset
When an asset is sold or otherwise disposed, it creates a CGT Event. The date of the event will depend on when the contract for disposal or sale was entered into.
For the sale of real estate, the date the contract is entered into will be the CGT Event, not when a settlement was reached. This is important because it determines when the capital gain tax should be declared and in what financial year.
For example, James has entered into a contract to sell his property to Michael on the 14th June 2016, but the contract was not settled until the 8th October 2016. James has made a capital gain in the year he entered into the contract, so his gain will be reported in his 2016 Tax Return.
“For the sale of real estate, the date the contract is entered into will be the CGT Event, not when a settlement was reached”
Purchase of an asset
Additionally, how long the asset was owned for could impact on the calculation of how much tax is to be paid. Therefore, it is also important to establish exactly when an asset has been acquired. Most commonly, the acquisition date will be when an asset is purchased.
For the purchase of real estate, the acquisition date is determined by the date the contracted was entered in too, not when settlement was reached.
For example, using the same scenario above, when Michael entered into the contract with James on the 14th June 2016, this was the acquisition date, and all future capital gains calculations for Michael will be based on this date.
More on Capital Gains Tax can be found here
Jarrod Dengate – Accountant
Jarrod started working with Fitzpatrick Group in August 2016. He is currently studying a Bachelor of Commerce at the University of Wollongong, specialising in Accounting and Economics.
This question is about the 50% CGT discount for disposing of an asset that you have held for more than 12 months and I want to use real estate for this example. Let’s say you enter into a contract on May 1 and the property settles July 1, I understand the CGT event occurs on May 1. If I was to sell the real estate the following year that entered a contract on April 1 but it didn’t settle and I receive the funds on May 15, would this be eligible for the 50% CGT discount? When selling, is it the settlement date or day you entered into the contract to sell? Thanks
Hi Christopher,
Thanks for your question. I have sent this question to one of our accountants and he has responded with the following.
The 50% GST Discount is only available if you have held the property for 12 months or more. The starting date is the date you exchange for the purchase and the end date is the date you exchange for the sale.
The actual settlement date has no impact on the eligibility for the 50% GST concession.
Hopefully, this answers your question.
Thanks Christopher.