Does anyone know at what point in the sale of an IP a Capital Gains Event is deemed to have occurred. I am assuming this would be when contracts are exchanged but could be wrong.
We are selling an IP and don’t want the capital gains to eventuate in this tax year, but in the next. We would like to put it on the market soon, but defer any capital gains until next year.
If for instance I found a buyer next month, can we have a long settlement (say 90 days) thereby deferring the CG event until July?
In case you are wondering, if we defer until July then CGT isn’t due until May (?) 2008 and we can make good use of the money in the meantime!Please note I am not an accountant but as I understand it CG events are triggered at signing of contracts and not settlement.
Derek
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Skype – derekjones2113I agree with Derek, but more specifically beleive it is actually the date of the contract when the contract goes unconditional. ie you might sign today, but with a subject to finance clause which isn’t satisfied for a week. better check with your accountant to be sure.
Terryw
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not an accountant either but me make 3 – terry is probably at little righter (?) as unconditional date would be the reaching of an agreement ie all conditions satisifed – now that i have typed that I am not really sure – best to pay someone.[blush2]
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Section 104.10 of the ITAA 1997 states that :
(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 if you enter into the contract for disposal in say April 2006 then this is the date of disposal of the CGT asset. If you have a long settlement i.e. 90 days it will have no impact on the timing of the event. The only way to defer the CGT is to enter into the contract in July 2006 or after.
Hi Mike
What if you signed a contract on 29th of June with a subject to finance clause which was only met on the 2nd of July? ie the contract was not unconditional until the new financial year.
When would be the timing of the event?
I am now inclined to think it is the date of the contract still.
Would this be correct?
Terryw
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Terry,
Based on Section 104.10 it would be the 29th June as the date of disposal.
If finance was not approved then obviously the disposal would not occur (as the purchaser wouldn’t have funds to purchase the asset and the sale would fall through) and CGT Event A1 (dealing with disposals) would not apply.
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