Chapter 3 - Possible dates of acquisition

Summary of proposals

The date of acquisition would be either:

Option 1 – the date the agreement for the sale and purchase of “land” is entered into; or
Option 2 – the date when all the conditions of the agreement for the sale and purchase of “land” have been fulfilled.

3.1 As mentioned in the previous chapter, the first interest interpretation is the preferred interpretation from a policy perspective as it provides greater certainty and is more economically efficient than the disposal interpretation.

3.2 Under the first interest interpretation there are two possible options for the date of acquisition:

Option 1 − the date the agreement is entered into (even if the agreement was still conditional); or
Option 2 − the date when all the conditions of the agreement had been fulfilled (that is, the date the agreement goes unconditional).

Indicative characteristics of each option

3.3 To provide guidance, the following are indicative characteristics (but by no means exhaustive) of when either date may occur.

Option 1 – the date the sale and purchase agreement is entered into

the date a binding sale and purchase agreement is signed by the vendor or purchaser (including nominees or agents); or
the “Date” indicated on a binding sale and purchase agreement, which is then subsequently signed by the parties to the agreement; or
the date a binding oral agreement for the disposal of land was agreed to by the parties, which has then been subsequently actioned by part performance of the agreement and if required later, evidenced by a memorandum; or
the date the first equitable estate or interest in land is acquired under a binding agreement for the sale and purchase of land and specific performance in the wider sense of all equitable remedies is potentially available to the purchaser (such as injunction or award for damages).

Option 2 – the date the sale and purchase agreement goes unconditional

the date when all conditions agreed to by the parties, subsequent to the entering into the sale and purchase agreement are all fulfilled; or
the date an equitable estate or interest in land is acquired under a binding sale and purchase agreement, and specific performance in the strict sense is potentially available to the purchaser (that is, a Court order requiring the agreement to be performed in accordance with the terms of the agreement by ordering the transfer of the land title).

The advantages and disadvantages of either option

3.4 There are numerous advantages and disadvantages that arise for both these options. These are summarised and discussed briefly in the table below.

	Option 1 Date agreement is entered into	Option 2 Date agreement goes unconditional
Decision-making by taxpayer – is there a decision that the taxpayer needs to make at this point of the agreement?	A clear decision is required by the taxpayer to enter into the agreement, even if documentation is signed by an agent or a nominee of the taxpayer.	No clear decision required at this stage. Active steps may be required by the taxpayer to ensure the conditions are fulfilled – for example, instructing solicitors.
Clarity of date (bright line) – is the date at which this point of the agreement is clearly distinguishable or marked?	Clear bright line of the date that agreement is entered into in most circumstances. The line is less clear in circumstances when there has been part-performance before an actual agreement is drawn up or signed. Equitable bright line, as the taxpayer at this point has acquired an equitable interest and the Court could order specific performance in the wide sense – for example, an injunction/caveat or an award for damages.	The date in which conditions are fulfilled is not as clear, as conditions are usually fulfilled by third parties. Equitable bright line as it is at this point that the Court could order specific performance in the strict sense – for example, ordering the transfer of the land title.
Evidence – is there sufficient evidence to support the taxpayer’s intention?	Likely to be minimal evidence to prove the taxpayer’s intention or purpose.	More evidence is available to either prove or disprove the taxpayer’s intention, particularly if third parties are engaged as there is likely to be documentation to support that engagement. For example, there may be a short-term finance agreement which could indicate that the taxpayer is not intending to retain the land.

Option 1
Date agreement is entered into

Option 2
Date agreement goes unconditional

Decision-making by taxpayer – is there a decision that the taxpayer needs to make at this point of the agreement?

A clear decision is required by the taxpayer to enter into the agreement, even if documentation is signed by an agent or a nominee of the taxpayer.

No clear decision required at this stage. Active steps may be required by the taxpayer to ensure the conditions are fulfilled – for example, instructing solicitors.

Clarity of date (bright line) – is the date at which this point of the agreement is clearly distinguishable or marked?

Clear bright line of the date that agreement is entered into in most circumstances. The line is less clear in circumstances when there has been part-performance before an actual agreement is drawn up or signed.

Equitable bright line, as the taxpayer at this point has acquired an equitable interest and the Court could order specific performance in the wide sense – for example, an injunction/caveat or an award for damages.

The date in which conditions are fulfilled is not as clear, as conditions are usually fulfilled by third parties.

Equitable bright line as it is at this point that the Court could order specific performance in the strict sense – for example, ordering the transfer of the land title.

Evidence – is there sufficient evidence to support the taxpayer’s intention?

Likely to be minimal evidence to prove the taxpayer’s intention or purpose.

More evidence is available to either prove or disprove the taxpayer’s intention, particularly if third parties are engaged as there is likely to be documentation to support that engagement. For example, there may be a short-term finance agreement which could indicate that the taxpayer is not intending to retain the land.

Decision-making at phases of the sale and purchase agreement

3.5 As the policy intent of section CB 6 is to capture property speculators, arguably the most appropriate time to assess a taxpayer’s intention and purpose should be when a person decides to enter into a sale and purchase agreement. It is the initial decision-making that informs how a person intends to use the property. It would be unusual for a property speculator to enter into a sale and purchase agreement unless they thought it very likely that the purchase and its subsequent disposal would be profitable.

3.6 Generally speaking, there are no clear or additional decisions or actions made by the taxpayer at any other time in the agreement except perhaps the decision to engage third parties to carry out the conditions of the agreement.

Bright line

3.7 One of the key advantages of option 1 (the date the agreement was entered into) is that there is more likely than not a clear date or “bright line” of when the agreement was entered into. For example, the date when the sale and purchase agreement was signed (by either or both parties).

3.8 For option 2 (the date the agreement goes unconditional), the fulfilment of the conditions in a sale and purchase agreement is usually achieved through other mechanisms and often by third parties (such as obtaining finance from a bank, or a LIM report from the local council). Arguably, at that time, the taxpayer’s decision to purchase the property, for whatever reason, has already been made.

3.9 Potentially there are also bright lines available at both stages in the form of equitable remedies as noted in chapter 2 − that is, the equitable remedy of specific performance (either in a wide or strict sense).

Evidence

3.10 The main disadvantage of having the date of acquisition at the early stages of a sale and purchase agreement is the practical difficulty in providing evidence to prove or disprove a taxpayer’s subjective intention.

3.11 This is less of an issue under option 1 (the date the agreement goes unconditional) than option 2, as being able to take third party information into account may assist the Commissioner of Inland Revenue in determining what the taxpayer’s actual intention for the land is.

3.12 A possible legislative solution to address this problem is discussed in the next chapter.