| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012580070844
Ruling
Subject: Deductions and Capital gains tax
Question and answer
1. Are you entitled to a deduction for the loss of the outstanding loan balance relating to Company A?
No.
2. Are you able to treat the loss of the outstanding loan balance to Company A as a capital gains loss?
No.
This ruling applies for the following periods
Year ending 30 June 2013
The scheme commences on
1 July 2012
Relevant facts and circumstances
You came to Australia from Country Y on a tourist visa a number of years ago.
You later obtained a 457 visa.
You were granted permanent residency of Australia.
You ran a company for a number of years in Country Y.
You were the sole director of the company for a number of years.
You made a loan to Company A in an attempt to keep the company afloat and to pay all its debts.
There was no loan agreement in place.
You are not and were not in the business of lending money.
Assumption(s)
N/A
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 768-910
Income Tax Assessment Act 1997 Section 995-1
Income Tax Assessment Act 1997 Division 855
Further issues for you to consider
N/A
Anti-avoidance rules
The application of Part IVA of the ITAA 1936 has not been considered as this topic is in the MEI low risk PART IVA list as specified in ORCLA.
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, or relate to the earning of exempt income.
When you made the loan to the company you were not in the business of lending money and therefore the loss is not incurred in earning assessable income and the loss of the loaned amount is capital in nature.
A loan is an asset that may be subject to the Capital Gains provisions.
A capital loss can be used to reduce any capital gains you make in the current year or future years. It cannot be used to reduce the amount of your other assessable income.
A CGT event C2 happens if your ownership of an intangible CGT asset ends by the asset:
a) being redeemed or cancelled; or
b) being released, discharged or satisfied; or
c) expiring; or
d) being abandoned, surrendered or forfeited; or
e) if the asset is an option-being exercised; or
f) if the asset is a convertible interest-being converted.
Section 768-915 of the ITAA 1997 specifies that a capital gain or loss you make from a CGT event is disregarded if:
· You are a temporary resident when, or immediately before, the CGT event happens; and
· You would not have made a capital gain or loss from the CGT event under Division 855 of the ITAA 1997 if you were a foreign resident when, or immediately before, the CGT event happens.
Generally, Division 855 of the ITAA 1997 specifies that a foreign resident can disregard a capital gain or loss unless the relevant CGT asset is a direct or indirect interest in Australian real property, or relates to a business carried on by the foreign resident through a permanent establishment in Australia.
Section 995-1 of the ITAA 1997 states that you are a temporary resident of Australia if:
· you hold a temporary visa granted under the Migration Act 1958;
· you are not an Australian resident within the meaning of the Social Security Act 1991; and
· your spouse is not an Australian resident within the meaning of the Social Security Act 1991.
Under the Social Security Act 1991, an Australian resident is generally a person who resides in Australia and is either an Australian citizen or the holder of a permanent resident visa.
In your case, you and your spouse came from Country Y to Australia a number of years ago.
You arrived in Australia with special category visas.
You initially had a tourist visa and then obtained a 457 visa.
You and your spouse were not Australian citizens or holders of permanent resident's visas when the company went into liquidation.
Therefore you are temporary residents for the period xxx up until xxxx.as you hold a temporary visa granted under the Migration Act 1958 and neither you nor your spouse are Australian residents within the meaning of the Social Security Act 1991.
In your case,
· The foreign business was an enterprise of Country Y;
· You were a temporary resident of Australia when the CGT event occurred ;
· You made a capital loss from the CGT event;
· You would not have made a capital loss from the CGT event under Division 855 if you were a foreign resident, as the business was not Australian real property and it was not carried on through a permanent establishment in Australia.
You are not in the business of lending money and the outstanding loan balance is capital and therefore not deductable.
The capital loss you incurred upon the CGT event occurring is disregarded for Australian income tax purposes under section 768-915 of the ITAA 1997.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
