1011459336098 | Legal database

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Edited version of private ruling

Authorisation Number: 1011459336098

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Ruling

Subject: Capital gains tax - failed investment - capital loss

Question:

Did you make a capital loss in relation to your failed investment?

Answer:

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You were offered the opportunity to be part of a joint property development project which involved the construction of a shopping centre.

You, and a number of other mortgagees, had invested in the project through finance brokers. The project was for a specified period of time, with interest to be paid on a regular basis.

You received the interest payments for a number of months.

You were advised in a letter from your finance brokers that the development company could not meet their interest payments.

You were advised in a letter from your finance brokers that they had been unsuccessful in getting the development company to pay their outstanding debts and had recommended that the mortgagees pursue legal action for the debt recovery.

You received a letter from your finance broker that they would no longer be in a position to act on your behalf.

The mortgagees associated with the shopping centre operators and formed a committee to protect their interest in the property.

After the committee was formed, it managed the running and disposal of the shopping centre's assets.

You had received an amount of invested capital when all tangible assets had been disposed of by the committee.

Legal action was taken against the loan guarantor with settlement occurring in favour of the mortgagees.

You did not incur any legal expenses in relation to the legal action.

You received a distribution from settlement and you were advised that this represented the final distribution of all monies received by the mortgagees.

You have provided a number of documents which should be read in conjunction with, and form part of, this private ruling.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-10

Income Tax Assessment Act 1997 Section 102-15

Income Tax Assessment Act 1997 Section 102-22

Income Tax Assessment Act 1997 Section 104-25

Reasons for decision

Generally you make a capital loss as a result of a capital gains tax (CGT) event if you received less capital proceeds for an asset than its reduced cost base.

Capital losses can be applied to any capital gains that are made in the same income year. If your capital losses exceed your capital gains for the income year you will have a net capital loss. Net capital losses are carried forward and applied against any capital gains that you make during the next income year and so on until they have been applied against future capital gains.

After the capital losses have been applied to any capital gain in the same income year, any previously unapplied net capital losses from earlier income years can be applied to reduce the capital gain amounts (if any).

In your case, you have invested in a failed development project. Using the information you have provided, it is our view that you have made a capital loss on your failed investment.

Your capital loss can be applied to any capital gain that you have made in the same income year. If your capital loss exceeds any capital gain you have made in the same income year, your net capital loss can be carried forward and applied against any future capital gains after the capital losses incurred in those income years have been applied first.

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