A simple oversight could lead to a costly mistake: your property sale taxed twice!
February 3, 2026, 11:38 am
Did you know that a capital gain is taxed in the financial year the contract is signed, not when the deal is settled? This little-known fact can cause a big problem if not handled correctly. By misreporting the timing of your capital gain, you might face double taxation.
The case of Edward Sunna (https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2025/2025fca1499), decided by the Federal Court in 2025, serves as a cautionary tale. Sunna signed a contract on June 28, 2019, but received the deposit after June 30, which fell into the next financial year. He reported the deposit in his 2020 tax return and the remaining gain in 2023. However, the entire gain should have been declared in the 2019 tax return, resulting in a costly error.
Here's the breakdown:
Sale of Asset: The capital gain should be reported in the tax return for the year the contract was signed, regardless of when the deposit was received. If there's no contract, it's the year the asset ownership changed hands.
But here's where it gets tricky: the deadline for tax returns might pass before the sale is finalized. You can file your tax return without the capital gain, then amend it within a month of settlement. The ATO won't charge interest or penalties if the amendment is made promptly.
Options: If you grant an option to sell your property and it's exercised, the proceeds are included in the financial year the option is exercised, i.e., when the actual sale contract is signed. If not exercised, the option proceeds go in the tax return for the year the option was granted.
Forfeited Deposit: This is included in the tax return for the year the deposit was forfeited. If not forfeited, it's part of the sale proceeds and reported when the contract was signed.
The Income Tax Assessment Act, Section 107, allows the ATO to amend old tax returns to include a capital gain, even after the usual two-year amendment period. However, there's no provision to extend this period to correct a gain reported in the wrong year. This means the ATO can tax your capital gain in the correct year without removing it from the year it was mistakenly included, resulting in double taxation.
If you find yourself in a similar situation, you can request the ATO to use their discretion to extend the amendment period on the tax return with the error.
Julia Hartman, founder of BAN TACS Accountants (https://www.bantacs.com.au/), has been guiding clients through tax complexities for over 30 years.
Disclaimer: This article provides general advice and should not replace personalized financial guidance. Always consult a professional for tailored advice regarding your investments and financial decisions.
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