ATO Interpretative Decision
ATO ID 2001/414
Income Tax
Capital Loss - Shares of company in liquidationFOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Can an entity, holding shares in a company that has filed a winding up petition, claim a capital loss as a result of a CGT event under Division 104 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No, the entity cannot claim a capital loss in respect of the shares under division 104 of the ITAA 1997 as the shares have neither been cancelled nor has the liquidator made a valid declaration that shareholders are unlikely to receive any further distribution from the winding up of the company.
Facts
The taxpayer purchased shares in a company. A few months later, the company filed a petition with the court for winding up. The company liquidators have stated verbally that the shares are worthless. However, the liquidators considered it was too early to make a declaration in writing.
Reasons For Decision
Where taxpayers own shares in a company that has been placed in liquidation they may realise a capital loss in respect of worthless shares in one of two ways:
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- CGT event C2 Section 104-25 of the ITAA 1997 : when the shares are cancelled as a result of the dissolution of the company; or
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- CGT event G3 section 104-145 of the ITAA 1997 : where a liquidator declares in writing that there is no likelihood that the shareholders will receive any further distribution in the course of winding up the company .
In this case, the shares have not been cancelled therefore CGT event C2 has not occurred.
Neither has the liquidator made a declaration in writing stating that there is no likelihood that the shareholders will receive any further distribution in the course of the winding up of the company. A verbal declaration by the liquidators is not a valid declaration in terms of subsection 104-145(1) of the ITAA 1997. Therefore a CGT event G3 has not occurred.
The taxpayer will not be able to claim a capital loss until the liquidators make a valid declaration or the shares end on their cancellation.
Date of decision: 10 September 2001Year of income: Year ending 30 June 2000
Legislative References:
Income Tax Assessment Act 1997
Division 104
Section 104-25
Section 104-145
subsection 104-145(1)
Related Public Rulings (including Determinations)
TD 2000/52
Keywords
Capital gains tax
Cancellation of shares
CGT events C1-C3 - end of a CGT asset
CGT events G1-G3 - shares
Disposal of shares
Liquidation
Winding up
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 10 September 2001 | Original statement |
| 7 July 2006 | Archived |