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  • Shares in a company in liquidation



    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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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.

    However, 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 three 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.

    In certain circumstances, you can choose to realise a capital loss on worthless shares prior to dissolution (if you had acquired the shares on or after 20 September 1985). This applies if you own shares in a company and the liquidator declares in writing that there is no likelihood you will receive any further distribution in the course of winding up the company. 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's declaration. The cost base and reduced cost base of the shares are reduced to nil just after the liquidator makes the declaration.

    These rules do not apply:

    • where a company is placed in receivership or is de-listed, or
    • to units in unit trusts.

    Example: Buy-back offer

    Sam bought 4,500 shares in Company A in January 1994 at a cost of $5 per share. In February 2001, Sam applied to participate in a buy-back offer to dispose of 675 shares (15%). Company A approved a buy-back of 10% (450) of the shares on 15 June 2001. The company sent Sam a cheque on 5 July for $4,050 (450 shares × $9). No part of the distribution is a dividend.

    Sam works out his capital gain for 2000-01 as follows.

    If he chooses to use the indexation method:

    Capital proceeds


    Cost base 450 shares × $5
    ($2 250 × 1.118 including indexation)


    Capital gain


    If he chooses to use the discount method:

    Capital proceeds


    Cost base


    Discount capital gain


    Sam has no capital losses to apply against this capital gain and decides that the discount method will provide him with the best result. He will include $900 ($1,800 × 50%) in his assessable income.

    End of example
    Last modified: 31 Aug 2010QC 16195