Capital Gains Tax - Marriage Breakdown - Court order to repay balance of loan

Is the taxpayer entitled to a deduction under either section 8-1 or section 12-5 of the Income Tax Assessment Act 1997 (ITAA 1997) or a capital loss under Division 104 of the ITAA 1997 for the repayment of the balance of a loan subsequent to a court order?

No. The taxpayer is not entitled to a deduction under either section 8-1 or 12-5 of the ITAA 1997 or to a capital loss under Division 104 of the ITAA 1997 for the amount of the payment of the balance of the loan. This sentence is amended to replace the words "the annual payment" with "the payment of the balance of the loan".

The taxpayer was granted a divorce subject to provisions of the Minutes of a Court Order. The taxpayer is required to repay the outstanding balance of a loan secured by a mortgage over jointly owned property. This sentence is amended to replace the words "pay the former spouse a sum of money by annual instalments." with "repay the outstanding balance of a loan secured by a mortgage over jointly owned property."

The payment was funded from the income of the taxpayer's business. This sentence is amended to replace the words "installments will be" with "payment was"

Paragraph 8-1(a) of the ITAA 1997 provides that the amount of any loss or outgoing can be deducted from assessable income provided that: • it is incurred in gaining or producing assessable income; or • it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

Subsection 8-1(2) of the ITAA 1997 however does not allow a loss or outgoing to the extent that it is of capital, or of a capital nature or of a private or domestic nature.

The taxpayer incurred the expenditure neither in gaining or producing assessable income nor in carrying on a business. The payment is of a private or domestic nature.

Section 12-5 of the ITAA 1997 does not contain any specific provision that allows a deduction for an amount paid in these circumstances.

Division 104 of the ITAA 1997 contains all the CGT events that can give rise to a capital gain or loss. The facts mentioned do not lead to the operation of any of these CGT events and there is no capital loss available in these circumstances.