Private ruling: Investment-related borrowings
Published: September 2014
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to choose to offset the capital proceeds received from the sale of one of your investment properties against only one of your investments loans? | A1: Invalid - no specific provision of the law applies - written general advice provided. | Q2: Are you entitled to offset your share of the capital loss against current year capital gains or where you have no current year capital gains, carry them forward to future years? | A2: Yes.

Relevant facts and circumstances: You and your spouse own two investment properties, one in your name only and the other in joint names. Your broker established investment loans and used your home as security. You and your spouse own your home; there is no mortgage owing on it. Due to financial hardship and despite the bad market you had to sell the investment property that was in joint names, resulting in a capital loss between the two of you. You and your spouse decided to offset the capital proceeds received from the sale against only one of your investment loans. You intend to sell your remaining investment property, which is in your name only, during the next two years.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 102-20

Reasons for decision: Detailed Reasoning - Capital gains tax: A capital gain or capital loss is the difference between the costs associated with the acquisition of an asset and the capital proceeds you receive when you dispose of that asset. You pay tax on your capital gains. It forms part of your income tax and is not considered a separate tax, although it is generally referred to as capital gains tax (CGT). If you make a capital loss, you cannot claim it against your ordinary income but you can use it to reduce a capital gain in the same income year. If your capital losses exceed your capital gains or you make a capital loss in an income year you don't have a capital gain, you can generally carry the loss forward and deduct it against capital gains in future years. | Detailed Reasoning - Apportionment: In the absence of information to the contrary, a property is considered to be legally and beneficially owned by the person/s registered on the title. Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners explains the basis upon which we will accept the division of the net income or loss from a rental property between co-owners of that property. Likewise, the division of a capital gain or capital loss will be apportioned according to ownership interests. Therefore, on the sale of the jointly owned investment property, you and your spouse will divide the capital loss in accordance with your ownership interests. That is, if you are joint tenants and each own 50%, you will each be entitled to 50% of the capital loss. When you sell the property that is in your name only, you will be entitled to offset your share of the carried forward capital loss against any capital gain that results from the sale. Your spouse's share of the loss cannot be used to offset any gain made on the sale.