ATO Interpretative Decision

ATO ID 2003/116

Capital Gains Tax

Deferred capital loss or deduction: greater than 50% interest - new event
FOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

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:

i)
a member of the linked group of which the originating company is a member,
ii)
a connected entity of the originating company,
iii)
an associate of such a connected entity...'

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:

(a)
...
(b)
words in the singular number include the plural...'

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 2003

Year 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)

Acts Interpretation Act 1901
   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

Siebel/TDMS Reference Number:  CRS80192

Business Line:  Public Groups and International

Date of publication:  15 March 2003

ISSN: 1445-2782