Private ruling: CGT – Forfeited deposit
Date of advice: 29 August 2018
Published: October 2018
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you entitled to an immediate deduction for the amount of the deposit forfeited? | A1: No. | Q2: Are you entitled to a capital loss for the amount of the deposit forfeited plus incidental costs? | A2: Yes. Having applied your circumstances to the principles held in Taxation Ruling TR 1999/19 Income tax capital gains: treatment of forfeited deposits the Commissioner accepts that a capital gains tax event C1 as described under section 104-20 of the Income Tax Assessment Act 1997 happened when the sale contract was terminated by the vendor and your deposit forfeited. Therefore, you are entitled to a capital loss of the amount of the deposit forfeited plus incidental costs. This capital loss is not an immediate deduction but may be offset against future capital gains.

Relevant facts and circumstances: You entered into a sale contract for the purchase of an off-the-plan unit. You paid a deposit representing X% of the contract price. You were advised by your mortgage broker, that your application for finance had been declined. You contacted the sellers’ legal representative and advised that you were unable to obtain finance and effect settlement. The Seller provided notification that they had terminated the Contract, in accordance with clause 55.1 of the Contract Terms, which states: 55.1 Buyer’s Default – Breach of Essential Term or fundamental breach of Intermediate term – the Seller may affirm or terminate Without limiting any other right or remedy of the Seller including those under this Contract or any right under statute or at common law, if the Buyer breaches or fails to comply with an Essential Term or makes a fundamental breach of an intermediate term of this Contract, the Seller may affirm or terminate this Contract. The notification also provided that the Seller had exercised their right to forfeit the Deposit and any Interest in accordance with clause 55.3 of the Contract Terms, which states: 55.3 If Seller terminates If the Seller terminates this Contract under sub-clause 1, the Seller may do any or all of the following: (a) resume possession of the Property; (b) forfeit the Deposit and interest; (c) sue the Buyer for the Deposit (if not yet paid); (d) sue the Buyer for damages; and/or (e) resell the Property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-20