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Edited version of private ruling
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Ruling
Subject: Capital gains tax (CGT) - deceased estate - capital losses
Are you entitled to apply your late spouse's carry forward capital losses against your own capital gains?
No.
This ruling applies for the following period:
1 July 2009 - 30 June 2010
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
The deceased passed away during the 2009-10 income tax year.
The deceased incurred a capital loss in relation to shares sold before their death.
The deceased's estate was left to you.
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 960-100.
Reasons for decision
Generally, a net capital loss can be carried forward to a later income year, to the extent that it cannot be applied in an income year.
However, a carried forward net capital loss is generally not transferable between different entities.
Taxation Determination TD 95/47 explains how a net capital loss is treated if it is unrecouped by a taxpayer at the date of his or her death. It states that a capital loss of a deceased taxpayer may be offset against any capital gain of the taxpayer in his or her final individual income tax return. Any unrecouped net capital loss lapses on the death of the taxpayer.
Paragraph 2 of TD 95/47 goes on to explain that the (unrecouped) net capital loss cannot be:
(a) offset against other income in the final tax return of the deceased; or
(b) carried forward into the first income tax return of the trust estate to be offset against future capital gains by the trust estate; or
(c) used by the beneficiaries of the deceased to be offset against their own capital gains.
Therefore, you cannot carry forward your late spouse's unrecouped capital losses to apply against your future capital gains.
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