Private ruling: Capital gains tax (CGT) - capital loss - income loss
Published: March 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is a net capital loss deductible from your assessable income? | A1: 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. After 20 September 1985, you and your spouse jointly purchased an investment property. You and your spouse have struggled to find decent tenants. Also as result of a couple of natural disasters in recent years you and your spouse have suffered damage to the property. The insurance you and your spouse had on the property was not reliable. You and your spouse have made a loss every year. This year you and your spouse found a buyer and it was sold for a huge loss. You and yours spouse's business (under partnership) is very vulnerable at the moment. You and your spouse will not invest in any property in the future and you will have a carried forward loss. You and your spouse want to convert this capital loss into an income loss so that you offset the loss against other income gain (net income from partnership business).

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 36-10 | Income Tax Assessment Act 1997 Section 102-10 | Income Tax Assessment Act 1997 Section 102-15 | Income Tax Assessment Act 1997 Section 102-20

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | Detailed Reasoning - Income losses: In a year of income, a net rental loss from an Australian property may be offset against income from other Australian sourced income. An income tax loss incurred in one income year may be carried forward and deducted in arriving at your taxable income of succeeding income years. Income losses may be carried forward indefinitely until absorbed. An income loss is incurred in any income year if your allowable deductions other than any unrecouped losses brought forward from earlier years exceed the assessable income and the net exempt income (if any) of the year. The amount of the loss is the amount of the excess. | Detailed Reasoning - Capital losses: A net capital loss is worked out by subtracting capital gains for the income year from capital losses for the income year. If the resulting amount is more than nil, it is your net capital loss for the income year. A net capital loss is not deductible from your assessable income. However, it can generally be offset against capital gains made by you in a later income year. Showing the capital loss on your return in a year in which there is no offset against a capital gain, serves to provide an accurate means of recording and advising the Australian Taxation Office a loss has occurred, which will be used to offset future capital gains. The remainder is your net capital loss that you will be able to carry forward indefinitely until you make a future capital gain. You apply your net capital losses in the order that you make them. Therefore, you and your spouse's capital loss is not deductible from your assessable income. However, you can use the capital loss to offset any capital gain you make in the future. As stated above a carried forward loss can be carried forward indefinitely.