Exactly When the 12 Months is up for the 50% CGT Discount

Question

You have helped me not long time ago. I have decided to sell my land.

I wanted to ask you to help me this time with very simple enquiry:

It is about CGT again but this time regarding to sale of my land.

I wanted make sure that I am eligible for 50% discount on CGT.

I am not sure whether contract sale or settlement is crucial for calculating the CGT discount.

I signed contract on my land on the 14th of April 2021 but settlement took almost two months – it settled on the 15th of June 2021.

Julia, please, when can I sign a new contract with a buyer at the soonest time to be eligible for 50% discount on CGT? What day the contract date should be?

To explain how the things are…I bought a house which I have been living in and it is my primary place of residence since June 2019. Then I bought block of vacant land with contract date 14/4/2021. Settlement was two months later 15/6/2021. I was planning to build my new house on the land. I changed my mind…it’s too hard to get a builder to build on a steep slope, plus you perhaps remember that I was unhappy about paying CGT on the new house. You recommend to expose my current house to the tax….But I decided to stay in my current house. The next door noisy tenants will very likely move as the house was put on the market. So fingers crossed.

I didn’t do anything with the land. Just paying rates, land tax, unconnected water services and insurance. And I had to clear it around the perimeter with neighbours because council issued me with a notice about bushfire nuisance risk….which is not relevant to your question 😂🙂🤭

I would like to know if I can start selling and claim 50% CGT discount on investment property (my land). Or do I need to wait until mid June. Which date is crucial for working out 50% discount on CGT (contract day or settlement date) for both acquiring and disposing a property please? Or is it different for acquiring and for disposing? I believe that the contract date is the one which counts for both purchase and sale. I am planning to reinvest into an apartment in the city. I don’t think that I can rollover CGT or stamp duty into the new property. If you could kindly answer this question too, that would be amazing.

Thank you so much again!


Answer

Ok so you are all in the clear as far as not being caught as buying the property for resale at a profit. It is important that you do not let a conveyancer or real estate agent talk you into registering for GST. The contract should state (or at least not state to the contrary) that GST is not included in the price, the sale is not subject to GST, the sale is not subject to the margin scheme, the seller is not registered for GST and that it is not a contract to which withholding applies. Here is a blog in case you have to have the argument https://bantacs.com.au/Jblog/do-not-let-your-conveyancer-talk-you-into-registering-for-gst/#more-948

The short answer to your question is if you signed the contract to buy this land on 14th April 2021 then your 12 months is up you will get the discount if you now sign a contract to sell. The key in legislation is whether it refers to ownership period or the time of the CGT event. Ownership period is settlement, CGT event is signing of the contract.

109-5(2)

This table sets out specific rules for the circumstances in which, and the time at which, you acquire a *CGT asset as a result of a *CGT event happening.

Note: The full list of CGT events is in section 104-5 .

Acquisition rules (CGT events)  
Event Number
In these circumstances:
You acquire the asset at this time:
A1
(case 1)
An entity *disposes of a CGT asset to you (except where you compulsorily acquire it)when the disposal contract is entered into or, if none, when the entity stops being the asset's owner

104-10(1)

CGT event A1 happens if you *dispose of a *CGT asset.

104-10(2)

You dispose of a *CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.

Note: A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960-100(2) ). This means that CGT event A1 will not happen merely because of a change in the trustee.

104-10(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.

Example: In June 1999 you enter into a contract to sell land. The contract is settled in October 1999. You make a capital gain of $50,000.

The gain is made in the 1998-99 income year (the year you entered into the contract) and not the 1999-2000 income year (the year that settlement takes place).

Note 1: If the contract falls through before completion, this event does not happen because no change in ownership occurs.


SECTION 115-25
Discount capital gain must be on asset acquired at least 12 months before

115-25(1)

To be a *discount capital gain, the *capital gain must result from a *CGT event happening to a *CGT asset that was *acquired by the entity making the capital gain at least 12 months before the CGT event.

Note 1: Even if the capital gain results from a CGT event happening at least a year after the CGT asset was acquired, the gain may not be a discount capital gain, depending on the cause of the CGT event (see section 115-40 ) and the nature of the asset (see sections 115-45 and 115-50 ).

Note 2: Section 115-30 or 115-34 may affect the time when the entity is treated as having acquired the CGT asset.

Sections 115-30 50 115-50 are about rollovers, deceased estates, companies, trusts etc not about a normal sale of an asset.

BTW all those holding costs you mention will be able to reduce the capital gain – section 110-25(4)

No you can’t roll the stamp duty or capital gain into the new property


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