ATO Interpretative Decision
ATO ID 2003/398
Income Tax
Deferred capital loss or deduction: ceases to exist - part of the relevant CGT asset ceases to existFOI status: may be released
Status of this decision: Decision Current
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Where greater than 50% of the 'relevant CGT asset' (as defined in paragraph 170-275(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)) ceases to exist, can it also be taken that a 'new event' occurs for the purposes of paragraph 170-275(1)(a) of the ITAA 1997?
Decision
Yes. Where greater than 50% of the relevant CGT asset ceases to exist then paragraph 170-275(1)(a) of the ITAA 1997 applies as a greater than 50% interest in the relevant CGT asset has ceased to exist.
Facts
An 'originating company' (as defined in paragraph 170-255(1)(a) of the ITAA 1997) disposed of a CGT asset to another entity.
The disposal of the CGT asset resulted in section 170-255 of the ITAA 1997 applying. As a consequence, a capital loss that the originating company would otherwise have been entitled to was disregarded under section 170-270 of the ITAA 1997.
Subsequently, greater than 50% of the relevant CGT asset acquired by the other entity ceased to exist.
Reasons for Decision
Where a capital loss has been disregarded under section 170-270 of the ITAA 1997 the originating company is taken to have made an equivalent capital loss where a 'new event' happens under section 170-275 of the ITAA 1997.
Paragraph 170-275(1)(a) of the ITAA 1997 provides that a new event happens where the relevant CGT asset, or a greater than 50% interest in it, 'ceases to exist'.
Where greater than 50% of the relevant CGT asset ceases to exist' then a greater than 50% interest in the relevant CGT asset concurrently also ceases to exist, notwithstanding that 100% of the remaining portion of the CGT asset continues to exist.
Consequently, a new event happens for the purposes of subsection 170-275(1) of the ITAA 1997, and the originating company is taken to have made a capital loss equal to the amount of the capital loss that was disregarded by section 170-270 of the ITAA 1997.
Note: The term 'a greater than 50% interest in it' in paragraph 170-280(3)(a) of the ITAA 1997 is to be interpreted consistently with the interpretation used in applying paragraph 170-275(1)(a) of the ITAA 1997 given in this ATO Interpretative Decision.
Date of decision: 8 May 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
Subdivision 170-D
subsection 170-255(1)
paragraph 170-255(1)(a)
section 170-255
section 170-270
section 170-275
subsection 170-275(1)
paragraph 170-275(1)(a)
paragraph 170-280(3)(a)
Keywords
Capital losses
Deferral event
Deferred capital losses
Disregarded capital loss
Losses and Capital Gains Tax CoE
Net capital losses
New event
Originating company
Realisation event
Relevant CGT asset
ISSN: 1445-2782