Private ruling: Capital gains tax
Date of advice: 11 May 2018
Published: July 2018
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Did you incur a capital loss in regards to you unrepaid loan? | A1: No.

Relevant facts and circumstances: You lent a sum of money to an individual. Minimal repayments were made on the loan. You obtained legal advice to determine your prospects of success in recovering the debt amount and a writ was issued.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-25 | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 section 112-20 | Income Tax Assessment Act 1997 subsection 110-25(1) | Income Tax Assessment Act 1997 section 110-55 | Income Tax Assessment Act 1997 section 116-20 | Income Tax Assessment Act 1997 section 116-30

Reasons for decision: Summary: You make a capital gain or capital loss if and only if a CGT event happens (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)). The gain or loss is made at the time of the CGT event. A CGT asset under section 108-5 of the ITAA 1997 is any kind of property, or a legal or equitable right that is not property. It also includes part of, or an interest in, property or a legal or equitable right that is not property. Examples include land and buildings, debts owed to a taxpayer, or a right to enforce a contractual obligation. Generally you make a capital gain or a capital loss of a CGT event occurs to a CGT asset you own. The most relevant CGT event in this situation may be CGT event C2. CGT event C2 occurs if your ownership of an intangible CGT asset ends by cancellation, redemption, release, discharge, satisfaction, expiry, abandonment, surrender, or forfeiture. In your case, you lent money to an individual and have only had a minimal amount repaid. You received legal advice on the prospects of success on the recovery of the debt and a writ was issued after the year you are looking to claim a capital loss. Consequently, efforts were still be made to reclaim the money at that time and it cannot be said that the debt was released, abandoned, surrendered or forfeited. As such, CGT event C2 had not yet occurred and you are not entitled to claim a capital loss in that year.