With the end of the Financial Year almost upon us it's timely to remind those sellers lucky enough to have reached an agreement to go to contract on their Investment properties, of the benefits or potential consequences of signing of the contract pre or post 30th June.
As the sale of an investment property is not something most of us would usually do more than once or twice in a lifetime, it's understandable that Most sellers would be unaware of the fact that the CONTRACT DATE can have the potential to impact their CAPITAL GAINS TAX liability.
It's worth knowing the following information provided by the Australian Taxation office on timing of a Real Estate CGT event ( sale of investment property).
- When you sell or otherwise dispose of real estate, the time of the event (when you make a capital gain or loss) is usually:
- when you enter into the contract (generally the date on the contract), not when you settle – the fact that a contract is subject to a condition, such as finance approval, generally doesn't affect this date
- when the change of ownership occurs if there is no contract (such as when a property passes to a beneficiary), or
if the real estate is compulsorily acquired – the earliest of:
- when you receive compensation from the acquiring entity
- when the entity became the property's owner
- when the entity enters the property under a power of compulsory acquisition or takes possession under that power.
Example: Sale contract
Aiko entered into a contract to sell land in June, the last month of the income year. The contract was settled in October, in the next income year.
Aiko made the capital gain in the income year she entered into the contract, not the next income year when settlement took place.
It pays to consult your Accountant of Financial Advisor before signing the contract. If your own income is likely to be LESS in the following year than the current year, it may pay to hold off a week or two until the new financial year. Conversely if you expect to earn MORE in the following year than the current year you'd may benefit in the contract being dated in the current year.
Ultimately if you're not consulting your Accountant or Financial Advisory for advice then you may be doing yourself a disservice. If you are feeling all alone and don't have a preferred Advisory to assist you with ASIC's Money Smart website has a handy guide on choosing a Financial Advisor to suit your needs.