When does a property sale become a Capital Gain for tax purposes: when the money lands, or when the contract is signed? A recently reported Full Federal Court decision has given a firm answer, and confirmed the ATO can reach back years to put the gain in the right income year. With long settlements and off-the-plan deals common, and Australia's CGT rules changing from 1 July 2027, the timing question matters more than ever.

The case in brief

The case is Sunna v Commissioner of Taxation [2026] FCAFC 133, an appeal from an earlier Federal Court decision, [2025] FCA 1499. A case note on the decision from Level 27 Chambers is dated 1 October 2026. The exact judgment date has not been confirmed.

The facts are simple. A contract to sell a Sydney property was signed in June 2019. Settlement did not happen until August 2022, more than three years later.

The taxpayer reported a smaller capital gain in the 2020 income year. The Commissioner took a different view of when the gain arose and how much it was.

Why the contract date decides the year

The key rule is section 104-10(3) of the Income Tax Assessment Act 1997. For CGT event A1, the disposal of an asset, the event happens when the contract is entered into. If there is no contract, it happens when the change of ownership occurs.

That means the date of signing, not the date of settlement, generally fixes the income year in which the capital gain is counted.

In Sunna, the contract was signed in June 2019, before the end of the 2018–19 income year. So the CGT event happened in the 2019 income year, even though the money did not change hands until 2022.

This catches people out. Many sellers naturally think of the sale as happening at settlement, when they hand over the keys and receive the funds.

How the ATO reopened an old year

Normally, the ATO can only amend an assessment within a set period. For most individuals and small businesses, that period is two years. For others, it is generally four years.

By the time the dispute arose, the 2019 year was outside the normal amendment period. But the Commissioner relied on section 170(10AA) of the Income Tax Assessment Act 1936, a provision that allows amendments outside the usual time limits in certain CGT situations.

Using it, the Commissioner added the gain to the 2019 year and removed it from the 2020 year.

The Full Court dismissed both the taxpayer's appeal and the Commissioner's cross-appeal. The 2019 amendment stands.

But the Commissioner did not win on every point. The court found the 2020 amendment was outside section 170(10AA), because no CGT event occurred in 2020. The taxpayer was ordered to pay 90 per cent of the Commissioner's costs.

The split result is a useful reminder that the extended power is not open-ended. In this case it supported an amendment to the year in which the CGT event happened, but not the change to a year in which no CGT event occurred.

A worked example of the timing trap

Hypothetical example: Maria signs a contract in June 2019 to sell an Investment property she has owned for ten years. Settlement is delayed until 2022. The capital proceeds are $1.2 million and her cost base is $800,000, giving a capital gain of $400,000.

Under the rules that applied then, an individual who had held the asset for at least 12 months could generally apply the 50 per cent CGT discount. That would leave a net capital gain of $200,000 to include in her income.

Because the contract was signed in June 2019, that $200,000 belongs in her 2018–19 return. If she waits and reports it in a later year, her assessment for the correct year may be amended and her later return corrected.

Depending on how the gain is reported, shortfall interest and penalties may also come into play.

The figures are invented for illustration. Real outcomes depend on cost-base records, losses, ownership and other income.

Why this matters for sellers now

The lesson is not new law. The contract-date rule has been in the Act for years. What Sunna shows is that the ATO is prepared to use the extended amendment power to put a gain in the year the law says it belongs.

That is relevant for anyone selling with a long settlement, an off-the-plan contract that takes years to complete, or a sale with conditions that delay completion.

It is also relevant as Australia's CGT system changes. Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, the 50 per cent CGT discount is being replaced by cost-base indexation and a 30 per cent minimum tax for gains accruing from 1 July 2027.

Gains that straddle that date will need careful handling. Knowing exactly when a CGT event happened will help work out which rules apply.

Practical steps include:

  • recording the exact date each sale contract is signed
  • reporting the gain in the year of the contract, not settlement
  • keeping cost-base records until well after the amendment period ends

Anyone who realises they reported a gain in the wrong year can ask the ATO to amend the relevant assessment. Fixing an error before the ATO raises it is generally the better position to be in.

Key dates and what to watch

The second CGT tranche, covering more complex cases including trusts, is in Schedule 4 of the Tax Reform No. 3 bill, which was the subject of a second reading speech on 14 October 2026. It is a bill, not yet law.

A Senate Economics Legislation Committee inquiry into that bill holds hearings on 5 and 6 November, with its report due on 13 November 2026.

Further tranches are expected to cover matters such as CGT roll-overs and foreign and temporary residents.

The detail matters for sellers with contracts signed before 1 July 2027 but settling after it. As Sunna shows, the date on the contract can decide the tax result years later.