When a company is placed in liquidation or administration, company law restricts the transfer of shares in the company. This means that, in the absence of special capital gains tax (CGT) rules, you would not be able to realise a capital loss on shares that have become worthless
Shareholders are able to choose to make a capital loss if a liquidator or an administrator of a company declares in writing that they have reasonable grounds to believe there is no likelihood that shareholders will receive any further distribution for their shares.
Investors who hold a financial instrument in a company can choose to claim a capital loss if the liquidator or administrator of the company makes a declaration in writing that the financial instrument has no value or negligible value.
Financial instruments include (but are not limited to):
- convertible notes
- debentures
- bonds
- promissory notes
- loans to the company
- futures contracts
- forward contracts and currency swap contracts relating to the company
- rights or options to acquire any of these, including rights or options to acquire shares in a company.
Many financial instruments may be referred to as securities.
The decision about whether or not to make a declaration, and the time at which to make a declaration, rests solely with the liquidator or administrator. Administrators and liquidators can make written declarations in relation to shares and financial instruments in the same statement - for example, a declaration in relation to a share and an option to acquire a share.
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You cannot claim a capital loss for a financial instrument, such as a right or option to acquire a share, if a liquidator or administrator declares they consider the shares are worthless but do not make a declaration that they consider the financial instrument is of no value or has only negligible value.
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Last Modified: Thursday, 28 June 2012