Example 1 – Capital loss
In the 2003–04 income year, Sue contributed $100,000 to participate in one of the Letten Schemes. In the 2007–08 income year, Sue paid an extra $50,000 as part of the ‘Project Reserve Bonds’. She also incurred an expense of $1,000 in relation to legal fees concerning her investment in the Letten Schemes.
When the receiver determines Sue’s entitlement to receive a distribution from the Common Fund, Sue’s total contributions is determined to be $150,000, which is the total of amounts actually paid by Sue. Sue’s entitlement to receive an interim distribution from the Common Fund is determined to be $15,000 and her entitlement to receive a final distribution from the Common Fund is determined to be $5,000.
On 15 April 2013, Sue receives $15,000 as an interim distribution out of the Common Fund.
Sue has a CGT event occurring on 15 April 2013 as a result of her claim to the Common Fund.
Prior to the payment of the interim distribution, the cost base of Sue’s claim to the Common Fund will be the sum of her total contributions and other costs of investment, which will be:
$150,000 + $1,000 = $151,000.
The amount of the interim distribution ($15,000) is less than the cost base of Sue’s claim to the Common Fund just before the interim distribution ($151,000). Consequently, Sue will not make a capital gain or loss in relation to her claim to the Common Fund in the 2012–13 income year.
On 15 February 2014, Sue receives $5,000 as the final distribution out of the Common Fund.
Sue has a CGT event occurring on 15 February 2014 as a result of her claim to the Common Fund.
Just before Sue receives the final distribution, the cost base of Sue’s claim to the Common Fund will be the sum of her total contributions and other costs of investment less the amount received as an interim distribution, which will be:
$150,000 + $1,000 - $15,000 = $136,000.
The capital proceeds for the expiration of Sue’s claim to the Common Fund will be the final distribution she receives from the receiver, which is $5,000.
Consequently, in the 2013-14 income year, in relation to her claim to the Common Fund, Sue has made a capital loss of $131,000 ($5,000 - $136,000 = -$131,000).
Sue can use this capital loss to offset against any capital gains arising in the 2013–14 year tax return or later year tax return.
End of exampleExample 2 – unpaid capital gain
Following on from example 1, Sue was advised that she had made a capital gain of $5,000 from her investment in the Letten Scheme which she included in her tax return for the 2008–09 income year. Sue did not receive and is unlikely to receive any part of the $5,000 capital gain. Sue received her notice of assessment on 3 December 2009. Because Sue is unlikely to receive any part of the $5,000 capital gain, she has a unlimited period of review and can ask for her 2009 year tax return to be corrected so as to remove the incorrectly reported income.
End of exampleExample 3 – prior deductions
In the 1997–98 income year, Sam contributed $150,000 to participate in the YVG project. As Sam’s investment in the YVG project was between 1998 and 2000, he is described as a YVG Direct investor. Sam claimed tax losses in the 1997–98, 1998–99 and 1999–2000 income years, exceeding $150,000. In the 2008–09 income year, Sam paid an extra $35,000 as contribution to the ‘War Chest’. He incurred an expense of $1,050 in relation to legal fees concerning his investment in the Letten Schemes.
When the receiver determines Sam’s entitlement to receive a distribution from the Common Fund, Sam’s total contribution is determined to be $185,000, which is the total of amounts actually paid by Sam. Sam’s entitlement to receive an interim distribution from the Common Fund is determined to be $18,500 and his entitlement to receive a final distribution from the Common Fund is determined to be $2,500.
On 15 April 2013, Sam receives $18,500 as an interim distribution out of the Common Fund.
Sam has a CGT event occurring on 15 April 2013 as a result of his claim to the Common Fund.
Prior to the payment of the interim distribution, the cost base of Sam’s claim to the Common Fund will be the sum of his total contributions and other costs of investment less his investment in YVG Direct, which will be:
$150,000 + $35,000 + $1,050 – $150,000 = $36,050
The amount of the interim distribution ($18,500) is less than the cost base of Sam’s claim to the Common Fund just before the interim distribution ($36,050). Consequently, Sam will not make a capital gain or loss in relation to his claim to the Common Fund in the 2012–13 income year.
On 15 February 2014, Sam receives $2,500 as the final distribution out of the Common Fund.
Sam has a CGT event occurring on 15 February 2014 in respect of his claim to the Common Fund.
Just before Sam receives the final distribution, the cost base of Sam’s claim to the Common Fund will be the sum of his total contributions and other costs of investment less his investment in YVG Direct and less the amount received as an interim distribution, which will be:
$150,000 + $35,000 + $1,050 – $150,000 - $18,500 = $17,550
The capital proceeds for the expiration of Sam’s claim to the Common Fund will be the final distribution he receives from the Receiver, which is $2,500.
Consequently, in the 2013–14 income year, as a result of his claim to the Common Fund, Sam has made a capital loss of $15,050 ($2,500 - $17,550 = -$15,050).
Sam can use this capital loss to offset against any capital gains arising in the 2013–14 year tax return or later year tax return.
End of exampleExample 4 – prior year deduction and capital proceeds greater than cost base
Continuing Example 3, if Sam had not paid the extra $35,000 contribution to the war chest, his cost base prior to the payment of the interim distribution would be:
$150,000 + $1,050 – $150,000 = $1,050
In the 2012–13 income year, as a result of his claim to the Common Fund, Sam has made a capital gain of $17,450 ($18,500 - $1,050 = $17,450).
In the 2013–2014 income year, as a result of his claim to the Common Fund, Sam has made a capital gain of $2,500 ($2,500 - $0 = $2,500).
End of example