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Ruling
Subject: Capital loss - loan
Question
Can you claim a capital loss for repayment of the non-recourse loan?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2011.
Year ended 30 June 2012.
The scheme commenced on
1 July 2010.
Relevant facts
You invested in a project.
Your initial investment in the project was through a non-recourse loan.
The loan books for the project were purchased by another company.
You were advised that the provisions of the non-recourse loan had been breached and they required payment for the loan.
You made a payment to the company as repayment of the loan and received a Deed of Release.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 108-5
Reasons for decision
Capital gains tax (CGT) is the tax you pay on certain gains you make. It is not a separate tax and any capital gain that you make is included in your assessable income and taxed at your marginal tax rates.
You make a capital gain or capital loss, if and only if, a CGT event happens to a CGT asset that you own. The most common event, CGT event A1, happens if you dispose of your ownership interest in an asset.
You make a capital gain if the capital proceeds from the disposal of the asset are more than the assets cost base. You make a capital loss if those capital proceeds are less than the assets reduced cost base.
For CGT purposes, a loan is considered a CGT asset for the lender and a liability for the borrower. When a loan is repaid, the borrower does not dispose of a CGT asset and therefore makes no capital gain or loss.
In this case, you invested in a project through a non-recourse loan. This loan is a liability for you as the borrower, and not a CGT asset. When you made a payment to settle the loan, you did not make a capital loss. Therefore, you can not claim a capital loss for repayment of the non-recourse loan.
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