I paid a $5,000 deposit to purchase an investment property. After a few months I withdrew from the contract of purchase because of some financial concerns. But I didn’t get my $5,000 back because of my withdrawal. Can I show this as a loss to the Tax Office and claim a tax deduction?
If a purchaser defaults on a contract, then a capital gains tax event occurs at the time the purchaser defaults. In order to determine if there is a capital loss, the market value of the underlying property needs to be looked at. Broadly speaking, if the property has the same market value at the time of default as at the time that the contract was entered into, there will be no capital loss.
If the market value of the property has fallen then a capital loss has occurred. Incidental costs incurred will result in a loss even if the market value has remained the same. If the underlying asset was intended to be your main residence, there will be no gain or loss. Capital losses can only be offset against other capital gains you make and not against other ordinary incomes such as wages and business income.
Troy enters into a contract to purchase an investment property for $500,000 and pays a $5,000 deposit and incurs $500 in legal fees. Troy reassesses his finances and decides he would rather invest on the stock market so withdrawals and loses his deposit. The value of the property remains at $500,000. Bob will have a capital loss of $500, being the legal fees incurred.
Troy enters into a contract to purchase an investment property for $500,000 and pays $5,000 deposit and incurs $500 in legal fees. There is a downturn in the property market and other similar properties that were selling for $500,000 are now selling for $450,000. Bob decides to withdrawal and loses his deposit. Bob will have a capital loss of $5,500.