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Edited version of your private ruling
Authorisation Number: 1012555574491
Ruling
Subject: CGT - losses
Question
Are you entitled to a deduction for a loss you incurred when a contract you entered into to purchase an investment property was terminated?
Answer
No.
Question
Has a capital gain event occurred when the contract was terminated and have you made a capital loss?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts and circumstances
You entered into a contract to purchase an investment home jointly with your spouse.
You paid a deposit when you entered into the contract.
The contract was terminated as a result of unfavorable building and pest inspection.
You incurred the incidental expenses in the process of attempting to purchase the property:
The total amount of the deposit was returned to you.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Income Tax Assessment Act 1997 Section 104-25.
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.
The costs that you have occurred are incidental costs related to acquiring the asset and are therefore considered capital in nature and not deductible under section 8-1 of the ITAA 1997.
Capital gains tax
In these circumstances a CGT event C2 has occurred as the vendor's ownership of contractual rights has ended. (Taxation Ruling TR 1999/19 Income tax capital gains: treatment of forfeited deposits)
Consequently, you are entitled to a capital loss for your share of the incidental costs incurred in relation to the acquisition and subsequent ending of that right.
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