ATO Interpretative Decision
ATO ID 2003/116
Capital Gains Tax
Deferred capital loss or deduction: greater than 50% interest - new eventFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does a new event happen for the purposes of subsection 170-275(1) of the Income Tax Assessment Act 1997 (ITAA 1997) where the relevant capital gains tax (CGT) asset is acquired by more than one entity, none of which, considered in isolation, acquires a greater than 50% interest in it?
Decision
Yes. Where interests in the relevant CGT asset exceeding 50% in total are acquired by more than one entity, that is not excluded by paragraph 170-275(1)(b) of the ITAA 1997, a new event is taken to have occurred.
Facts
The taxpayer, company P, disposed of a CGT asset to its 100% owned subsidiary, company S.
The disposal of the CGT asset resulted in CGT event A1 happening for the purposes of subsection 104-10(1) of the ITAA 1997.
The capital proceeds were less than the asset's reduced cost base and the taxpayer made a capital loss in accordance with subsection 104-10(4) of the ITAA 1997.
Company P and company S were linked at the time of the CGT event for the purposes of subsection 170-260(2) of the ITAA 1997 so that the capital loss was disregarded pursuant to section 170-270 of the ITAA 1997.
Company S subsequently disposed of the CGT asset to two other companies who each acquired a 50% interest in it.
For the purposes of paragraph 170-275(1)(b) of the ITAA 1997 neither of the other companies were, at the time of acquiring their interests in the CGT asset, part of the same linked group as company P, nor a connected entity or an associate of a connected entity.
Reasons for Decision
Paragraph 170-275(1)(b) of the ITAA 1997 refers to a new event where:
'...the relevant CGT asset, or a
greater than 50% interest
in it, is acquired by
an entity
that is none of the following:
In applying the singular word 'entity' in paragraph 170-275(1)(b) of the ITAA 1997 it is considered that the word entity should also be construed as 'entities' by regard to paragraph 23(b) of the Acts Interpretation Act 1901 which provides that:
'In any Act, unless the contrary intention appears:
As paragraph 170-275(1)(b) of the ITAA 1997 applies then, pursuant to subsection 170-275(1) of the ITAA 1997, company P is taken to have made a capital loss at the time of the new event equal to the amount of capital loss that was previously disregarded because of section 170-270 of the ITAA 1997.
Date of decision: 14 January 2003Year of income: Year ending 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
subsection 104-10(1)
subsection 104-10(4)
subsection 170-260(2)
section 170-270
section 170-275
subsection 170-275(1)
paragraph 170-275(1)(b)
paragraph 23(b) Related ATO Interpretative Decisions
ATO ID 2003/67
Keywords
Capital losses
Net capital losses
Capital gains tax
CGT roll-over relief
Company losses
Deferred capital losses
Deferred capital losses and deductions
Connected entity
Deferral event
Disregarded capital loss
New event
Linked group
Originating company
Relevant CGT asset
ISSN: 1445-2782