• Capital losses on Pasminco Ltd shares


    This information applies to you if:

    • you are a Pasminco Ltd shareholder who is an Australian resident
    • you acquired your shares after 19 September 1985
    • you did not acquire your shares under an employee share scheme, and
    • any gain or loss you make on the shares is a capital gain or capital loss - this means you held your shares as an investment asset not
      • as trading stock
      • as part of carrying on a business, or
      • to make a 'one-off' or short-term commercial gain.


    An administrator was appointed for Pasminco Ltd on 19 September 2001. The company is not currently being liquidated, but there is a deed of company arrangement.

    On 31 March 2005, the administrator of Pasminco made a declaration in writing that they have reasonable grounds to believe there is no likelihood shareholders will receive any further distribution from their shares.

    Effect of a written declaration by an administrator

    The administrator's declaration on 31 March 2005 meant shareholders could claim a capital loss in their 2004-05 tax return.


    Dave owns 1,000 Pasminco shares. Following the declaration by the administrator on 31 March 2005 that the shares are worthless, Dave chose to claim a capital loss for his Pasminco shares in his 2004-05 tax return.

    Dave acquired his Pasminco shares in March 1998 for $1.70 each, including brokerage costs. No non-assessable payments were received by Dave in respect of the shares. Therefore, the reduced cost base of Dave's Pasminco shares and his capital loss in respect of those shares is $1,700 - that is, 1,000 x $1.70.

    In working out his net capital gain or net capital loss for the 2004-05 year, Dave took the capital loss of $1,700 from his Pasminco shares into account.

    Pasminco shareholders who agree to hold their shares in trust

    If you did not choose to claim a capital loss for your Pasminco shares in your 2004-05 return as a result of the administrator making their declaration, you may nevertheless be able to claim a capital loss for your shares. You can do this by declaring a trust over the shares.

    On 7 April 2004, the Tax Office issued Taxation Determination TD 2004/13 which indicates shareholders may be able to claim a capital loss (under CGT event E1) in an income year by declaring a trust over their shares in that year. The Taxation Determination indicates the following tests have to be satisfied:

    1. the shareholder has to agree in writing to hold the relevant shares, including all beneficial rights in respect of the shares, as trustee on trust for the buyer
    2. the shareholder has to own the shares as trustee until registration of transfer of the shares happens, and
    3. there has to be no intention, arrangement or understanding at any time that beneficial ownership of the shares will revert to the shareholder.

    Consistent with the approach taken in Taxation Ruling IT 2643, the general anti-avoidance provisions (Part IVA) in the tax law may potentially apply to share arrangements between related parties, such as family members, which do not meet the three tests above.

    Shareholders will make a capital loss from CGT event E1 equal to the difference between the capital proceeds they receive and the reduced cost base of their shares. Shareholders wishing to confirm that a capital loss is available in their circumstances should phone us on 13 28 61 or seek professional advice.

    (The alternative to declaring a trust over your shares is to wait until the company is dissolved and your shares cancelled. You can then claim a capital loss in that income year.)

    How to work out the capital proceeds

    Generally, when a CGT event happens because a trust is created over an asset, the capital proceeds from the event is the market value of the asset (that is, the market value substitution rule applies because no actual proceeds are received).

    Where you agree to hold shares in trust for another person or entity in exchange for money and the arrangement meets the three tests above, the capital proceeds is generally the amount you receive. This is because you are dealing with each other at arm's length.

    How to work out the reduced cost base

    If you purchased your Pasminco Ltd shares through the Australian Stock Exchange (ASX) or a broker, the reduced cost base includes the amount you paid for them as well as any stamp duty and brokerage fee. If you acquired the shares by other means, you will need to find out how to work out the reduced cost base - see what to read/do next.

    A fee you pay to an entity for arranging the transaction by which the trust is created is also included in the reduced cost base of the shares.


    Karen owns a parcel of 500 shares in Pasminco Limited. She acquired the shares in 1999 for $1.70 each, and incurred brokerage of $20.

    Karen signs a written agreement on 14 February 2004 accepting an offer from Value Co, an entity that offers to purchase shares in companies in administration for a commercial fee. Under the terms of the agreement, Value Co charges Karen a fee of $100 and she holds the shares on trust for Value Co until the transfer can be registered. Value Co pays Karen $10 for entering into the agreement and this is deducted from the fee Karen is charged.

    CGT event E1 happens at the time Karen signs the agreement.

    Karen makes a capital loss which she calculates as follows:

    Reduced cost base

    Purchase price





    Incidental costs:








    Capital proceeds



    Capital loss



    Karen takes the capital loss of $960 into account in working out the amount she shows at the capital gains question on her 2003-04 tax return.

    What to read/do next

    Shares and other securities that become worthless - a fact sheet that briefly explains when investors can choose to make a capital loss on their worthless shares and securities, and lists some relevant declarations made in the last three years.

    Guide to capital gains tax 2005-06 (NAT 4151-6.2006) - this publication explains how capital gains tax works and will help you to calculate your net capital gain or net capital loss.

    Personal investors guide to capital gains tax 2005-06 (NAT 4152-6.2006) - this is a shorter publication which covers the sale, gift or other disposal of shares or units; the distribution of capital gains from managed funds and non-assessable payments from companies or managed funds. It does not cover CGT consequences for bonus shares, shares acquired under an employee share scheme, bonus units, rights and options, and shares and units where a takeover or demerger has occurred - you will need to refer to the Guide to capital gains tax 2005-06 (NAT 4151-6.2006).

    For help applying this information to your own situation, phone us on 13 28 61.

      Last modified: 06 Oct 2009QC 17589