Edited version of private ruling

Authorisation Number: 1011577257050

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Ruling

Subject: Capital gains tax - traditional securities - Commonwealth Government Inscribed Stock

Relevant facts and circumstances

You purchased a number of Commonwealth Government bonds (CGBs).

You were charged the administration fees when you purchased the CGBs.

You have received semi-annual interest payments.

The CGBs were redeemed, at which time you received the face value of the CGBs and an interest payment.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 26BB(1)

Income Tax Assessment Act 1936 Subsection 70B(2).

Income Tax Assessment Act 1997 Section 118-20

Reasons for decision

Traditional securities

A traditional security is, broadly, a security that is not issued at a discount of more than 1.5%, does not bear deferred interest and is not capital indexed. A traditional security may be, for example, a bond, a debenture, a deposit with a financial institution or a secured or unsecured loan.

A deduction for any loss on the disposal or redemption of traditional securities is included in the income tax return in the year of income in which the disposal or redemption takes place. The capital gains tax (CGT) provisions also apply to such disposals unless the securities were held as trading stock. Double taxation is prevented by the anti-overlap provisions in the CGT rules. Under the CGT rules, any amount that has been included in the taxpayer's assessable income under another provision of the Income Tax Assessment Act 1997 (ITAA 1997) or the Income Tax Assessment Act 1936 (ITAA 1936) as a result of the CGT event will be excluded from CGT.

In your case, you purchased a number of Commonwealth Government bonds (CGBs). You paid a premium to acquire the CGBs and have incurred administration charges in relation to the CGBs. At redemption, you will receive the face value of the CGBs, and an interest payment.

Your CGBs are viewed as being traditional securities as they meet the relevant conditions in order for them to be considered traditional securities. At the redemption of your CGBs you will only receive the face value of the bonds, therefore incurring a loss. Your loss is calculated as the amount of premium you paid for the CGBs. This loss is an allowable deduction in the income year in which the CGBs were redeemed.

Administration charges incurred when acquiring and redeeming the CGBs are also deductible at the time the CGBs are redeemed. In this situation, you will be able to claim deductions for the administration charges in your income tax return in the income year in which the CGDs were redeemed.

Note: As TaxPack 2011 has not been published at this point in time, we are unable to provide a definitive response as to where you should record your loss. In TaxPack 2010, non-capital losses incurred on the disposal or redemption of traditional security, which is deductible under section 70B of the Income Tax Assessment Act 1936, was recorded at Label D16 Deductions, Other deductions in the Supplement.

To ensure that you claim your loss at the correct label in your 2010-11 income tax return, you will need to read the TaxPack and Supplement to establish where other deductions, such as your loss from your traditional securities, are recorded.