Private ruling: Capital gains tax - costs incurred in potential purchase of property.
Published: January 2012
Ruling period: Year ended 30 June 2011.
Date scheme commenced: 1 July 2010.

Ruling: Q1: Did you make a capital loss from the legal costs you incurred in the potential purchase of a property? | A1: No.

Relevant facts and circumstances: During the 2010-11 income year you and your spouse attempted to purchase a commercial property. You and your spouse signed a contract and sent it to the vendor. However, the vendor never signed the contract as another party outbid you. You and your spouse incurred legal costs in relation to this matter. You have included the amount of the legal costs in the carried forward capital loss in your 2010-11 income tax return. You have provided a copy of the documentation to support your application and these documents are to be read with and forms part of your application for the purpose of this ruling: § Tax Invoice § Extract from email, and § Particulars of Sale of Real Estate.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 110-35 | Income Tax Assessment Act 1997 Section 104-20 | Income Tax Assessment Act 1997 Section 104-25 | Income Tax Assessment Act 1997 Section 110-55

Reasons for decision: Summary: Subsection 100-20(1) of the Income Tax Assessment Act 1997 states 'You can make a capital gain or loss only if a CGT event happens'. In your situation, you incurred legal fees in the expectation of acquiring a CGT asset, being a certain property. As it happened, you did not acquire the property nor did you acquire any rights under any contract. If you had, a CGT event might have happened on the loss or cancellation of those rights or on a later disposal of the property by you. Since you did not acquire any rights under a contract and you did not become the owner of any asset, whether tangible or intangible, no CGT event happened. As no CGT event happened, you cannot make a capital loss. You should adjust your records of your unrecouped capital losses accordingly.

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