Private ruling: Capital gains tax
Published: June 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Question and answer | Does the repayment of a loan to you trigger a CGT event? | Yes.

Relevant facts and circumstances: You entered into a loan agreement before 19XX to provide funds for the loan recipient to purchase their main residence. No interest was payable on the loan and the loan was to be paid back when they sold the property. The recipient sold the property after 19XX and purchased another property shortly after, but the loan was not repaid at this stage. You changed clauses in the original loan agreement document after 19XX when they purchased another property. The property was sold recently and the loan repaid to you.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 110-25 | Income Tax Assessment Act 1997 section 116-30

Reasons for decision: Summary: You make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets are only those acquired on or after 20 September 19XX. You make a capital gain if your capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if you receive more for an asset than you paid for it. You make a capital loss if your reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset, for example, if you receive less for an asset than you paid for it. Capital gains tax is not a separate tax, it forms part of your assessable income and is taxed at your marginal tax rate. CGT Event C2 Subsection 104-25 (1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that a CGT event C2 happens if a taxpayer's ownership of an intangible CGT asset ends by the asset: (a) being redeemed or cancelled; or (b) being released, discharged or satisfied; or (c) expiring; or (d) being abandoned, surrendered or forfeited; or (e) if the asset is an option - being exercised; or (f) if the asset is a convertible interest - being converted. Subsection 104-25 (2) of the ITAA 1997 states that the time of the event is: (a) when you enter into the contract that results in the asset ending; or (b) if there is no contract - when the asset ends. Intangible assets include the right to be repaid a debt. In your case, you initially entered into a contract to lend a sum of money for the loan recipient to purchase a house prior to 1985. As this agreement was entered into prior to 20 September 19XX, the discharge of this agreement did not trigger a CGT event. You then changed the initial agreement when the loan recipient sold the original property and purchased another property. New clauses were added to reflect the purchase of the new property. As the changes in the agreement were material, you and the loan recipient effectively entered into a new agreement. The loan recipient sold the property recently and repaid the loan to you. When the loan recipient repaid their loan (which originated from an agreement after 1985), your intangible asset (the right to be repaid) was cancelled. Consequently, a CGT event C2 occurred when the loan agreement came to an end and the money was repaid to you.