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Edited version of your written advice
Authorisation Number: 1012848598025
Date of advice: 27 July 2015
Ruling
Subject: Capital loss
Question
Are you entitled to a capital loss for your (50%) share of the amount lent by you and your spouse to a company?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 20XX
The scheme commences on
1 July 20XX
Relevant facts and circumstances
You and your spouse lent money to a company.
The company did not repay the loan.
The company was deregistered in the year ended 30 June 20XX.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 102-20
Income Tax Assessment Act 1997 section 104-25
Income Tax Assessment Act 1997 subsection 104-25(1)
Income Tax Assessment Act 1997 section 108-5
Income Tax Assessment Act 1997 subsection 116-30(1)
Reasons for decision
You make a capital gain (or loss) if and only if a CGT event happens (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)).
A capital gains tax (CGT) asset is any form of property or a legal and equitable right that is not property (section 108-5 of the (ITAA 1997)). A debt owed to you is an intangible CGT asset.
CGT event C2 happens if your ownership of an intangible CGT asset ends by the asset expiring or by it being released, discharged, redeemed, cancelled, abandoned, surrendered, or forfeited (subsection 104-25(1) of the ITAA 1997). The time of the event is when you enter into the contract that results in the asset ending; or if there is no contract, when the asset ends.
When a company is deregistered it ceases to exist. When the company is deregistered the company's debts, if any, are abandoned, surrendered or forfeited for the purposes of section 104-25 of the ITAA 1997.
As such, CGT event C2 happened to the debt owed to you by the company when it was deregistered. You are entitled to a capital loss for your (50%) share of the amount you and your spouse lent to the company.
The amount of the capital loss is the amount by which the reduced cost base of the debt owed to you exceeds the capital proceeds received.
The reduced cost base of the debt owed to you includes your (50%) share of the amount of the loan.
As you did not receive any capital proceeds you are taken to have received the market value of the debt owed to you (subsection 116-30(1) of the ITAA 1997). The market value of an irrecoverable debt is nil.