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Where a company is placed in liquidation, company law restricts the transfer of shares in the company. This means that, in the absence of special capital gains tax rules, you may not be able to realise a capital loss on shares that have become worthless.
You may realise a capital loss on worthless shares when a court order is given to dissolve the company. Also, if a company is wound up voluntarily, shareholders may realise a capital loss either 3 months after a liquidator lodges a return showing that the final meeting of the company has been held, or on another date declared by a court. The cancellation of shares as a result of the dissolution of the company is an example of CGT event C2.
You can choose to realise a capital loss on worthless shares prior to dissolution if you own shares in a company and the liquidator declares in writing that there is no likelihood that the shareholders in the company, or shareholders of the relevant class of shares, will receive any further distribution in the course of winding up the company. This is referred to as CGT event G3. The liquidator's declaration can still be made after you receive a distribution during the winding-up.
If you make this choice, you will make a capital loss equal to the reduced cost base of the shares at the time of the liquidator declaration. The cost base and reduced cost base of the shares are reduced to nil just after the liquidator makes the declaration.
You cannot choose to make a capital loss if you acquired the shares before 20 September 1985.
These rules do not apply where a company is placed in receivership or is delisted, or to units in unit trusts. The law does not prevent you from transferring those shares or units.
Last modified: 18 Sep 2009QC 18323