Consider delaying a property sale

Some property investors delay the intended sale of a property until the new financial year in an effort to defer payment of CGT.

“A property is generally deemed to have been sold on the date of the contract for CGT purposes rather than the settlement date,” says Eddie Chung, partner and property tax specialist with accountants BDO in Brisbane.

So if you want to defer the sale until the new financial year, don’t make the mistake of exchanging contractsbefore July 1.

Chung agrees that property investors should not defer the sale of a property if it places the transaction at risk. However,he says a way to deal with the risk of a deferred sale not proceeding is to enter a put-and-call option.

If the property owner exercises the option, the other party has to buy the property within a specified time.

“The entering of the option does not give rise to a CGT liability on the sale of the property until the point that the option is exercised,” Chung explains.

Finally, a decision to delay the sale of a property until the new financial year should not be based solely on an effort to save tax but have a commercial justification.

Otherwise the tax commissioner could try to apply the general anti-avoidance provisions.

Chung says a commercial justification for delaying a sale may include uncertainty about the availability of finance in the short term.

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