CGT Timing: When Is a Sale Contract Actually Entered Into?

When it comes to Capital Gains Tax (CGT) in Australia, the timing of a sale contract is crucial. The ATO considers the date you enter into the contract to sell an asset—not the settlement date—as the key point for CGT purposes. This means any capital gain or capital loss is counted in the income year the contract is signed.

Why Timing Matters

This rule has important tax implications. For instance:

• If you make a capital loss, you may be able to offset it against any gains in that same income year.
• If you're expecting a capital gain, you might choose to delay signing the contract until the next financial year—especially if you'll be in a lower tax bracket or eligible for discounts.

Tax Planning vs. Tax Avoidance

Managing the timing of your sale can be a valid tax planning strategy, but be cautious. Some practices—like “wash sales” (selling shares for a tax loss and then buying them back shortly after)—may be seen as tax avoidance by the ATO and fall under anti-avoidance rules.

Simply choosing when to sell is not illegal, but trying to create artificial losses or shift ownership without real economic change can get you into trouble.

Conditional Contracts and CGT

In real estate and similar transactions, contracts often have conditions (like “subject to finance”). The ATO distinguishes between:

• Performance conditions (e.g. finance approval): contract is in effect from the start.
• Formation conditions (e.g. offer not valid until condition is met): contract only exists once the condition is satisfied.

Getting this distinction wrong could mean misreporting the timing of your CGT event. When in doubt, seek professional advice.

Contracts That Don’t Settle

If a contract is cancelled before settlement, CGT doesn’t apply because there’s been no change of ownership. However, forfeited deposits or damages paid may still have CGT consequences.

Buying Assets and the 12-Month Rule

The timing of when you acquire an asset also matters—especially if you want to qualify for the 50% CGT discount. To get this discount, you need to have owned the asset for at least 12 months. If you acquire an asset through exercising an option, the ATO says the asset is considered acquired when the sale contract is entered into—not when the option was signed.

Need help with CGT timing or tax planning?
Whether you're buying, selling, or transferring assets, it’s essential to get advice on when a CGT event occurs. Contact us before entering into a contract to ensure you're making the most tax-effective decisions.