When does a sale happen from an accounting perspective.....

[Bluekiwi]

Okay so I sell a house in March and it goes unconditional in March on auction day.
But settlement is April.

Do I include the profit in the year ending March - actually prefer it I can.
Have asked this before but this is what my accountant dad says.


1. income tax. couldnt find anything definate in tax guide but my understanding is;
that an unconditional s&p agreement or when it becomes unconditional is the sale date
and not the settlement date. this to determine tax year end 31/3/11 or 31/3/12.
suggest you get confirmation.

2. gst. tax guide states time of supply can be triggered by an invoice. 7/02 ird determined
that neither an unconditional or conditional s&p agreement does not constitute an invoice.
another document notifying an obligation to pay is required. this may be an invoice or other
demand issued by your solicitor in the settlement process.

hope this helps
dad

[ChrisD]

For income tax, see this:

The general timing provisions for the allocation of income or allowable expenditure are found in ss BD 3 and BD 4. In the absence of any specific timing regime under Pt E, assessable income is recognised in the income year when derived, and allowable expenditure is deductible when incurred. Examples of specific timing regimes are those relating to certain income from leases (¶5-115) and income derived on compulsory acquisition of land (¶5-122).
The Australian case, Gasparin v FC of T 94 ATC 4280, specifically addressed the issue of when income from the sale of land is derived. The case involved a land developer who had entered into a number of agreements for the sale of various allotments. The agreements became unconditional before balance date but were not settled until after balance date. The issue was whether income from the sales was derived when the agreements became unconditional (before balance date) or when the sales were settled (after balance date). The Full Federal Court of Australia held that income is derived when a legal debt arises in respect of the property disposed of. Generally, this does not occur until settlement takes place. Although a vendor may demand specific performance or damages under an unconditional contract before the conveyance of title, the vendor is not entitled to sue for the purchase price as a debt. No legal debt for the purchase price arises until title is due to be conveyed.
The Commissioner has accepted that Gasparin is authoritative law in New Zealand. See Tax Information Bulletin Vol 16, No 5, June 2004, p 34. The item also emphasises that the financial arrangements rules must be taken into account in cases of a deferred settlement. See also Tax Information Bulletin Vol 11, No 1, January 1999, p 7

The TIB referenced can be found here, but it's difficult reading. Start at page 34.

What I'm unsure about, however, is whether the vendor could invoice you prior to 31 March, which may force a legal debt prior to balance day. I've never seen anyone do this, and I'd have to work through the legal issues.

On GST - the time of supply occurs at the earlier of invoice date and the date you paid your deposit (generall - there are exceptions to this). Your dad is right that a S&P agreement doesn't constitute an invoice.