You may be able to claim a capital loss if you're:
- a shareholder, and 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
- an investor who holds a financial instrument in a company, and the liquidator or administrator of the company makes a declaration in writing that the financial instrument has no value or negligible value – such financial instruments may include
- convertible notes
- 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.
The decision about whether or not to make a declaration, and the time at which to make it, rests solely with the liquidator or administrator. They 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.
You can't claim a capital loss for a financial instrument, such as a right or option to acquire a share, if a liquidator or an administrator declares they consider the shares are worthless but does not make a declaration that they consider the financial instrument is of no value or has only negligible value.
You can't choose to make a capital loss for:
- a financial instrument where any profit made on the disposal or redemption of it would be included in your assessable income or any loss would be deductible – such as a traditional security or qualifying security
- a unit in a unit trust or a financial instrument relating to a trust
- certain interests acquired under employee share schemes.
Employee share schemes
If your shares or rights were acquired under an employee share scheme (ESS), these CGT rules do not apply to:
- a right acquired before 1 July 2009
- a share acquired if
- it is a qualifying share
- you did not make a section 139E election in relation to the share under the employee share rules
- the declaration by the liquidator or administrator was made no later than 30 days after the ‘cessation time’ for the share
- an ESS interest or an ESS interest that is a beneficial interest in a right that is forfeited and is taken to have been acquired.
This ensures the tax consequences for shares you acquire for less than their market value are dealt with under the ESS tax rules before any potential capital gains tax rules apply.
You may choose to make a capital loss if all the following conditions apply:
- You are an Australian resident for income tax purposes.
- You hold a share or financial instrument relating to a company that went into liquidation or administration.
- You acquired the share or financial instrument after 19 September 1985.
- A liquidator or administrator of the company made a written declaration that they believed the shares were worthless or the financial instruments had no value or negligible value.
- Any gain or loss you would make on the share or financial instrument is a capital gain or capital loss – that is, you hold the share or financial instrument as an investment asset and
- not as trading stock (see Share trading as business)
- not as part of carrying on a business
- not to make a short-term or ‘one-off’ commercial gain.
If you choose to make the capital loss when the declaration is made, your capital loss is equal to the reduced cost base of the shares (or financial instruments) at the time of the declaration by the liquidator or administrator. If you make the choice, the cost base and reduced cost base of the shares (or financial instruments) are reduced to nil just after the liquidator or administrator makes the declaration. This is relevant for working out if you make a capital gain from any later capital gains tax (CGT) event happening to the shares (or financial instruments).
You indicate that you have chosen to make the capital loss by the amounts you show at the capital gains tax question on your tax return for that year.
You may receive a further payment in respect of your shares if, for example, court action was successful in recovering money for the company or its shareholders.
- Company dissolved more than 18 months after a payment: If you receive a payment after the date of the declaration and the payment is not assessable to you as a dividend, you may make a capital gain at the time you receive the payment.
- Company dissolved within 18 months of a payment: If the payment is made to you by a liquidator after the declaration and the company is dissolved within 18 months of a payment, the payment is included as capital proceeds on the cancellation of your shares (rather than you making a capital gain at the time of the payment). In preparing your tax return you may delay declaring any capital gain until your shares are cancelled, unless you are advised by the liquidator in writing that the company will not cease to exist within 18 months of you receiving the payment.
Example: Capital loss when company dissolves
On 31 March 2023, the administrators of Company Ltd made a written declaration that they had reasonable grounds to believe there was no likelihood that shareholders would receive any distribution for their shares.
At the time of the declaration, Dave owned 1,000 Company Ltd shares. Following the declaration by the administrators, he chose to claim a capital loss for his Company Ltd shares in his 2022–23 tax return.
Dave acquired his Company Ltd shares in March 2010 for $1.70 each, including brokerage costs. Therefore, the reduced cost base of Dave’s Company Ltd shares and his capital loss in respect of those shares is $1,700 – that is, 1,000 multiplied by $1.70.
In working out his net capital gain or net capital loss for the 2022–23 year, Dave takes the capital loss of $1,700 from his Company Ltd shares into account.End of example
Example: Company dissolved more than 18 months after a payment
The administrators of Company Ltd made a written declaration on 31 March 2021 that they had reasonable grounds to believe that there was no likelihood that the shareholders of Company Ltd would receive any distribution from their shares.
Dave purchased 1,000 shares in Company Ltd in March 2010 for $1.70, including brokerage costs. Following the administrators’ declaration, Dave chose to make capital losses equal to the reduced cost bases of his shares as at 31 March 2021. Therefore, the reduced cost base of Dave’s shares and his capital loss in respect of those shares is $1,700. Dave claimed the capital losses in his 2021 tax return.
On 1 March 2023, Court action was successful in recovering $0.10 per share for the shareholders.
As more than 18 months had passed since the administrator's declaration back in 2021, the recovery of $100 – that is, 1,000 × $0.10, is assessable as a capital gain in Dave's 2022–23 income tax return.End of example
Where a company liquidation affects a large number of people, we may provide specific guidance on the tax implications (see Events affecting shareholders).Check if you can realise a capital loss on shares or investments in a company in liquidation or administration.