Private ruling: Applying capital loss
Published: December 2011
Ruling period: 1 July 2010 to 30 June 2011

Ruling: Question and Answer | Can you apply a capital loss made on shares against a capital gain you made on the sale of an investment property in a previous financial year? | 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. The taxpayer sold an investment property in a previous financial year. The taxpayer has underestimated the capital gain on the sale of the property. The taxpayer currently hold shares, which, when sold will amount to a significant loss. When the taxpayer sells the shares they want to offset the loss against the capital gain for the previous financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-15 | Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10

Reasons for decision: Summary: Capital gains tax (CGT) is the tax the taxpayer pays on any capital gain they make and include on their annual income tax return. Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states, the taxpayer makes a capital gain or capital loss if and only if a CGT event happens. An A1 event happens if the taxpayer disposes of a CGT asset, the time of the event is when the taxpayer enter into the contract for the disposal or if there is no contract when the change of ownership occurs. CGT event A1 will happen when the taxpayer sells their shares (section 104-10 of the ITAA 1997). The taxpayer makes a capital gain if the capital proceeds from the disposal are more than the asset's cost base. The taxpayer makes a capital loss if those capital proceeds are less than the asset's reduced cost base. A capital loss can only be offset against a current financial year capital gain, if the taxpayer has no capital gains they can carry forward the loss to offset against future capital gains. 'To the extent that a net capital loss cannot be applied in an income year, it can be carried forward to a later income year (subsection 102-15 of the ITAA 1997). The Commissioner does not have the discretion to allow a taxpayer to offset a capital loss against a capital gain for a previous financial year.

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.