Private ruling: Capital gains tax
Published: October 2011
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Question and Answer | Did you make a capital loss in the 2010-11income year from your investment in the mortgage trust? | No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You own units in a mortgage trust. You earned interest which was credited to you quarterly. You have declared the interest income in your tax returns. You were advised the mortgage trust has frozen redemptions. You have not sold any units in the 2010-11 income year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-5. | Income Tax Assessment Act 1997 Section 102-20. | Income Tax Assessment Act 1997 Section 104-10. | Income Tax Assessment Act 1997 Section 104-145. | Income Tax Assessment Act 1997 Section 108-5.

Reasons for decision: Summary: A capital loss or capital gain is made when a capital gains tax (CGT) event happens to a CGT asset. A person will only realise a capital loss from their investment in a mortgage trust if a CGT event occurs and that CGT event results in a capital loss. For example, CGT event A1 occurs if a person disposes of an investment. In your case CGT event A1 will happen when you sell some units which you have in your mortgage trust. As you hold units, you have an interest in the mortgage trust. We consider that your interest in the mortgage trust is an interest in a financial instrument. CGT event G3 occurs if a liquidator or administrator declares shares or financial instruments worthless. The time of the CGT event is when the declaration is made. Upon the finalisation of your investment in the mortgage trust, CGT event G3 may occur after the partial capital returns have been made if the liquidator issues a statement to say that there is no likelihood that you will receive any further distributions. At this stage, no CGT event has occurred in relation to your investment in the mortgage trust and therefore you can not realise a capital loss. For example, you have not sold any units or you have not been issued a statement from the liquidator declaring your investment to be worthless. In conclusion, you can not claim a capital loss in the 2010-11 income year as no CGT event has occurred.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.