Private ruling: CGT - losses
Published: November 2013
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for a loss you incurred when a contract you entered into to purchase an investment property was terminated? | A1: No. | Q2: Has a capital gain event occurred when the contract was terminated and have you made a capital loss? | A2: Yes.

Relevant facts and circumstances: You entered into a contract to purchase an investment home jointly with your spouse. You paid a deposit when you entered into the contract. The contract was terminated as a result of unfavorable building and pest inspection. You incurred the incidental expenses in the process of attempting to purchase the property: The total amount of the deposit was returned to you.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1. | Income Tax Assessment Act 1997 Section 104-25.

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature. The costs that you have occurred are incidental costs related to acquiring the asset and are therefore considered capital in nature and not deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Capital gains tax: In these circumstances a CGT event C2 has occurred as the vendor's ownership of contractual rights has ended. ( Taxation Ruling TR 1999/19 Income tax capital gains: treatment of forfeited deposits) Consequently, you are entitled to a capital loss for your share of the incidental costs incurred in relation to the acquisition and subsequent ending of that right.