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Edited version of private advice
Authorisation Number: 1051921765027
Date of advice: 12 November 2021
Ruling
Subject: CGT - collectables and private use assets
Question
Is the loan a debt arising in the course of gaining or producing your assessable income for the purposes of subparagraph 108-20(2)(d)(i) of the Income Tax Assessment Act 1997?
Answer
Yes. Subsection 108-20(2) of the ITAA 1997 provides that a personal use asset includes a debt arising other than in the course of gaining or producing your assessable income. In your case, you lent money to a company you were a shareholder of to assist it to earn profits and distribute dividends. Consequently, the loan arose in the course of gaining or producing assessable income and the debt is not a personal use asset.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You loaned a company money to fund a new business with the intention that the business would be profitable, the funds would be repaid and dividends would subsequently be paid to them.
Lawyers acting on your behalf served a statutory demand on the company demanding repayment of the loan.
The company and its lawyers entered into negotiations on the basis that the company was not financially in a position to repay the loan. The negotiations subsequently broke down.
Lawyers acting on your behalf commenced proceedings in the Supreme Court to wind up the company.
Your debt was accepted by the liquidator as part of the liquidation process.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 108-20(2)