For CGT purposes, the taxable year of a capital gain on selling an asset is set by the date the sale contract is signed, not the settlement date. A retiree selling in their final working year versus a few days later in their first retirement year can face a very different marginal tax rate on the same gain, making the contract signing date one of the highest-leverage retirement tax decisions.
For Australian retirees selling a significant asset at the retirement transition — an investment property, a business, or a large share parcel — the timing of the capital gains tax (CGT) event is often the single biggest tax-planning lever available. Under the rules for CGT event A1 (the disposal of a CGT asset, section 104-10 of the Income Tax Assessment Act 1997), the event happens when the contract for disposal is entered into, not when settlement occurs. This is a rule practitioners know reflexively and clients are routinely surprised by. A retiree who contracts to sell an investment property on 28 June 2026, settling on 15 August 2026, has the capital gain fall in the 2025-26 income year — even though the money doesn't arrive until well into 2026-27. The settlement date is irrelevant to which year the gain belongs in; only the contract date counts. For those who understand this and choose their contract date deliberately, the saving can run to tens of thousands of dollars from a single signing-date decision; for those who don't, the gain can land in the worst possible year.
There is one practical wrinkle worth understanding. You are not required to report the gain until settlement actually happens — because until the change of ownership occurs there is no completed disposal. But once settlement does occur, the gain is brought to account in the year the contract was signed, amending that earlier year's return if it has already been lodged. So a June-2026 contract that settles in August 2026 is reported in the 2025-26 return; if that return was already lodged, it is amended to include the gain. The contract date governs the year; settlement merely triggers the obligation to report it back to that year.
The investment property scenario makes the lever concrete. Suppose a retiree plans to stop work on 30 June 2027 and sell an investment property around then. If they contract on 25 June 2027 (settling in August), the gain falls in 2026-27 — their final working year, stacked on top of a full year's salary and taxed at the top marginal rate of 45% plus the 2% Medicare levy. If instead they contract on 5 July 2027 (still settling in August), the gain falls in 2027-28 — their first retirement year, when employment income has stopped and the gain is taxed at much lower marginal rates. A contract in December 2027 produces the same 2027-28 outcome. The difference between the first two is just ten days of contract timing, yet on a $500,000 gain the marginal-rate differential can be worth $60,000–$80,000. The choice sits with the seller — buyers will often accommodate a preferred signing date if the seller flags it early — and the settlement date is beside the point.
The conditional contract question complicates this where a contract is subject to conditions. Whether a condition delays the contract date for CGT depends on what kind of condition it is: a condition only pushes the date back if it is a condition precedent to the formation of the contract (so no binding contract exists until it is met). A standard "subject to finance" clause operates as a condition subsequent — a binding contract exists from signing, and the finance condition does not delay the CGT event. By contrast, a "subject to due diligence" clause in a business sale, where the buyer can genuinely walk away, may delay the event if it goes to formation rather than merely performance — but the position is fact-dependent. For a retiree signing a conditional contract near year-end, this is exactly where specific advice earns its keep: assuming the wrong timing can attribute the gain to a year the seller didn't expect, and reporting it incorrectly invites an ATO amendment.
The look-through earn-out rules in Subdivision 118-I of the ITAA 1997 matter most for retirees selling a business with a deferred, performance-linked component. A typical earn-out might be $1M at settlement plus up to $500,000 over three years if the business hits agreed EBITDA targets. Without special rules each contingent payment would be its own CGT event with its own timing — and the small business CGT concessions might apply only to the upfront payment. The look-through rules instead treat the contingent payments as part of the original CGT event, with that year's calculation re-worked as each payment is received. So the seller's age and holding period at the original contract date govern the whole payment stream, and a concession available at sale (such as the 15-year exemption) can flow through to the entire amount.
The conditions for a "look-through earnout right" are specific and set out in section 118-565. The right must be created on or after 24 April 2015; it must be a right to future financial benefits that are not reasonably ascertainable when the right is created; it must arise from an arrangement disposing of a CGT asset; just before the CGT event the asset must have been an active asset of the seller; all the financial benefits must be provided within five years after the end of the income year in which the CGT event happens; the benefits must be contingent on, and reasonably related to, the economic performance of the asset or business; and the parties must deal at arm's length. A "reverse" earn-out (where the seller may have to refund part of the price) is also covered. For a retiree structuring a business sale with deferred consideration, getting the earn-out drafted to qualify is essential — a non-qualifying earn-out can mean paying tax on later payments at marginal rates without the concession the seller earned at the original sale, so specialist tax advice well before contract execution is the right response.
The interaction with the small business CGT concessions is the highest-value application. A retiree selling a business at 55 or over, having held it for at least 15 years, can qualify for the 15-year exemption — the whole gain tax-free. If the sale is $1M upfront plus a $500,000 earn-out and the earn-out qualifies for look-through, the entire $1.5M — contingent payments included — is exempt under the original sale's 15-year exemption. If the earn-out does not qualify, only the upfront amount is sheltered at the original contract date, and each later payment becomes its own CGT event whose concession eligibility must be re-tested at the time. The look-through rules buy certainty by anchoring everything to the original sale.
What do worked planning examples show?
These two cases show how CGT timing affects retirees in practice. Illustrative only — not personal advice — using FY25-26 figures.
Case 1 — Lisa, 64, planning to retire on 30 June 2026. She holds an investment property bought 12 years ago that has appreciated by $480,000, and wants to sell to free up retirement cash. The gain after the 50% CGT discount is $240,000, and the contract date decides everything. If she contracts on 28 June 2026, the gain falls in 2025-26 — her final working year — stacked on a $145,000 salary, so it is taxed largely at 45% plus Medicare; the tax attributable to the gain is roughly $109,000. If she instead contracts on 5 July 2026 (or any time in 2026-27), the gain falls in her first retirement year, when most of her income is tax-free account-based pension and her assessable income is low — so the $240,000 is taxed from a much lower base, with tax on the gain around $88,000, and less still if her other assessable income that year is minimal. On these facts the rational step is simply to sign the contract after 30 June 2026: a saving of roughly $20,000–$30,000 for a few days' difference in signing date. The practical action is to tell the agent and prospective buyers not to exchange before the new financial year — settlement timing can stay wherever suits.
Case 2 — Greg, 60, selling his business as he retires. The deal is $2M at settlement plus up to $800,000 of earn-out over three years tied to EBITDA targets. He has held the business shares for 22 years and the net assets are within the $6M small business threshold. Here both the contract date and the earn-out structure matter. Signing in October 2026 — after his 55th birthday and well past the 15-year holding period — means the 15-year exemption conditions are met at the original CGT event. If the earn-out is drafted as a genuine look-through earnout right (contingent on EBITDA, not reasonably ascertainable up front, all payments within five years after the end of the CGT-event income year, arm's length), the whole $2.8M — earn-out included — is treated as part of that original event, and the 15-year exemption applies to all of it, so Greg pays no CGT. Were the earn-out poorly drafted and outside the look-through rules, the $800,000 would instead be separate CGT events in later years whose eligibility must be re-tested each time. On these facts the rational step is to confirm the earn-out's look-through qualification before signing, with specialist advice — and to plan how the exempt proceeds flow into super under the CGT cap.
For retirees selling significant assets at the retirement transition, CGT timing — the contract-date rule, conditional-contract analysis, and the look-through earn-out rules for business sales — is a core planning tool. The advice work is to identify the planned disposal early, project the CGT event into the right financial year, choose the contract date to suit the retirement income profile, analyse any conditional features specifically, and draft any deferred consideration to qualify for look-through. The single most consequential intervention is often the simplest: making sure the client understands that the contract date, not the settlement date, drives the year the gain is taxed — and signing accordingly.
Sources
- Australian Taxation Office (ATO) — Cgt events
- Australian Taxation Office (ATO) — Document
- Australian Taxation Office (ATO) — Earnout arrangements
- Australian Taxation Office (ATO) — Print
- Australian Taxation Office (ATO) — The small business 15 year exemption
Key takeaways
- CGT event A1 happens on the contract date, not the settlement date — a June contract that settles in August is still taxed in the earlier financial year.
- You don't have to report the gain until settlement occurs, but once it does, the gain gets attributed back to the contract-date year, amending an already-lodged return if needed.
- A standard 'subject to finance' clause doesn't delay the CGT event, but a genuine condition precedent to the contract's formation can.
- Signing a property sale just a few days apart — before versus after 30 June — can shift a large gain from a top-marginal-rate working year into a much lower-taxed first retirement year.
- Look-through earnout rules let deferred, performance-linked business sale payments be treated as part of the original sale for CGT and small business concession purposes, if specific conditions are met.
Frequently asked questions
Does a capital gain get taxed in the year I sign the contract or the year I settle?
The year you sign the contract. CGT event A1 happens on the contract date under section 104-10 of the ITAA 1997, regardless of when settlement actually occurs — even if settlement falls in the next financial year.
Can I delay a capital gain into a lower-tax year just by choosing when to sign?
Often yes, within reason. If you're retiring soon, signing a sale contract a few days after 30 June rather than before it can shift a large gain from your final high-income working year into your first retirement year, when your marginal tax rate is likely much lower — this can be worth tens of thousands of dollars on a sizeable gain.
Does a 'subject to finance' clause delay when my capital gain is taxed?
No. A standard subject-to-finance clause is a condition subsequent — a binding contract exists from the date of signing, so the CGT event date is the signing date regardless of the finance condition. A clause that's a genuine condition precedent to the contract even forming, like some due diligence clauses in a business sale, can potentially delay the event, but this depends on the specific facts.
How does an earn-out on a business sale get taxed for CGT purposes?
If the earn-out qualifies as a look-through earnout right under Subdivision 118-I — created from 24 April 2015, contingent on business performance, not reasonably ascertainable up front, paid within five years, and dealt with at arm's length — the deferred payments are treated as part of the original sale, letting concessions like the 15-year exemption apply to the whole amount. If it doesn't qualify, each later payment becomes its own separate CGT event.