ATO Interpretative Decision
ATO ID 2003/259 (Withdrawn)
Income Tax
CGT: Bankruptcy - current year capital losses not disregardedFOI status: may be released
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This ATO ID is withdrawn from the database as it is a straight application of the law and does not contain an intepretative decision.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 subsection 102-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) require an individual taxpayer to disregard a capital loss made in the same income year as the taxpayer became bankrupt or was released from debts under a law relating to bankruptcy?
Decision
No. Subsection 102-5(2) of the ITAA 1997 does not require an individual taxpayer to disregard a capital loss made in the same income year as the taxpayer became bankrupt or was released from debts under a law relating to bankruptcy.
Facts
The taxpayer owned shares in a company that was placed in liquidation.
During the 2001-2002 income year the taxpayer received a statement in writing from the liquidator that the liquidator had reasonable grounds to believe there was no likelihood of a return to shareholders of the company during the course of its winding up.
Earlier in the 2001-2002 income year, the taxpayer had been released from certain debts under Part X of the Bankruptcy Act 1966.
Reasons for Decision
Under subsection 104-145(1) of the ITAA 1997, CGT event G3 happens if a taxpayer owns a share in a company and its liquidator declares in writing that they have reasonable grounds to believe (as at the time of the declaration) there is no likelihood that the shareholders in the company will receive any further distribution in the course of winding up the company. In such circumstances a taxpayer can choose, under subsection 104-145(3) of the ITAA 1997, to make a capital loss equal to the reduced cost base of their share.
If the taxpayer makes the choice under subsection 104-145(3) of the ITAA 1997 by the day they lodge their 2001-2002 income tax return, or within a further time allowed by the Commissioner, the taxpayer will make a capital loss in the 2001-2002 income year equal to the reduced cost base of their share.
Under subsection 102-5(1) of the ITAA 1997 any net capital losses from earlier income years can be applied to reduce capital gains in determining the net capital gain for an income year.
However, if during the income year a taxpayer became bankrupt or was released from debts under a law relating to bankruptcy any net capital losses they made for an earlier income year must be disregarded in working out whether they made a net capital gain for the income year or a later one (subsection 102-5(2) of the ITAA 1997).
Because the taxpayer was released from certain debts under the Bankruptcy Act 1966 (a law relating to bankruptcy) during the 2001-2002 income year, any net capital loss made in an earlier income year is disregarded (see ATO Interpretative Decision 2003/258).
However, subsection 102-5(2) of the ITAA 1997 only disregards net capital losses made in an income year earlier than the year in which the taxpayer became bankrupt or was released from debts. It does not disregard a capital loss made in, or a net capital loss the taxpayer has for, the same year as the taxpayer became bankrupt or was released from debts.
Therefore, if the taxpayer chooses to make a capital loss from CGT event G3, the capital loss can be taken into account in determining whether the taxpayer has a net capital loss (or net capital gain) for the 2001-2002 income year and any resulting net capital loss can be carried forward to later income years.
Date of decision: 25 March 2003Year of income: Year ended 30 June 2002 Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
subsection 102-5(1)
subsection 102-5(2)
subsection 104-145(1)
subsection 104-145(3)
Part X Related ATO Interpretative Decisions
ATO ID 2003/258
Keywords
Bankruptcy
Capital gains tax
Capital losses
CGT events G1-G3 - shares
Debt release
Net capital losses
Part X bankruptcy arrangements
ISSN: 1445-2782
| Date: | Version: | |
| 25 March 2003 | Original statement | |
| You are here | 23 December 2011 | Archived |