Checking Capital Gains Tax Event Dates to Avoid Unnecessary Tax

Timing can make a noticeable difference when it comes to capital gains tax. Selling an asset a few days earlier or later can change the amount owed. This is especially true if it shifts the gain into a different financial year. Knowing when a capital gains tax event occurs helps you plan ahead and avoid paying more than necessary.

Understanding the CGT Event

A Capital Gains Tax event, which is what we’ll frequently call CGT in this article, is the point in time when the tax rules consider the sale or disposal to have happened. For most assets, this is the date you sign the contract. Others mistake it for the date they received the funds. That distinction can catch people off guard.

In some cases, like selling shares, the event is recorded on the trade date, not the settlement date. For property, it’s almost always the contract date that matters.

Why Dates Matter for Tax Planning

Tax is calculated based on the financial year in which the event falls. If a sale happens late in June, the gain is taxed in the current year. This has a payment due sooner. If you wait til July, you could push that tax bill back by an entire year. This gives you more time to prepare.

The date also matters for discount eligibility. To access the 50% discount for individuals, the asset must be held for at least 12 months from the date of acquisition to the date of the event.

Checking the Right Details

To avoid problems, here’s a list of what you should check:

• The contract date versus the settlement date
• Any special terms that could affect the timing of the sale
• Does the asset qualify for the 12-month discount?
• If selling in June, how close are you to the end of the financial year?
• Any deferred payment arrangements that might impact the event date

If everything is too much for you to understand, consider getting an accountant. Apart from their ability to strictly adhere to schedules, they also know tax calculations like the back of their hand.

If you can still process this info, read on.

Matching Events to Personal Circumstances

The right timing isn’t the same for everyone. Someone expecting a lower income next year may prefer to delay a sale so the gain is taxed in a lower bracket. Others may want to realise the gain sooner to use up capital losses carried forward.

If you’re selling multiple assets, space the tax events across different financial years to keep the overall tax more manageable.

How the ATO Views Event Dates

The Australian Taxation Office is clear that for most assets, the contract date is final for capital gains tax purposes. It doesn’t matter if the sale falls through later. It also doesn’t care if the settlement is delayed. Any renegotiation doesn’t usually change the original event date unless the contract is void from the start.

For inheritances, the event can occur when ownership is legally transferred. This may not match the date of physical possession.

Common Situations That Need Care

There are a few scenarios where date tracking becomes especially important:

Property sales that cross the financial year boundary can easily lead to unexpected tax bills if the contract date is misunderstood. Likewise, selling shares near the end of June can lock in tax obligations months earlier than planned.

Capital losses from other investments can offset gains, but only if they occur in the same financial year. Selling a loss asset too late means you may not be able to apply it until the next year.

Planning Tools and Records

Keeping clear records of acquisition dates and settlement dates makes capital gains tax planning much easier. Even a basic spreadsheet can work for as long as it’s kept up to date.

Some investors use accounting software for auto-tracking of acquisition and disposal dates. This can be especially useful if you need to calculate capital gains tax Australia with multiple properties or shareholdings.

Professional Input

While many people can track their own tax events, timing may seem like rocket science for many. As we mentioned earlier, accountants can check contract terms. They can also advise you on the best timing and ensure all discounts or offsets are used correctly. They’ll do it all for you, so you can focus on what you do best.

Their input can be valuable when multiple events are happening in a short timeframe or when the gains are large enough to affect other tax positions.