ATO Interpretative Decision

ATO ID 2003/924 (Withdrawn)

Income Tax

• This ATO ID has been withdrawn from the database as it only applies to income years prior to 1998-99.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does section 160ZF of the Income Tax Assessment Act 1936 (ITAA 1936) apply to reduce the consideration from the disposal of an asset by an amount that was deposited with a nominee and which was ultimately not paid to the vendor?

Decision

Yes. Subsection 160ZF(1) of the ITAA 1936 applies to reduce the taxpayer's consideration.

Facts

The taxpayer entered into a contract to sell shares during the 1997-98 income year.

The sale agreement provided that, on completion, the purchaser would pay the purchase price as follows:

1.

a sum to the vendor, and

2.

a 'deposit amount' to be held by a third party on account of the purchase price.

The deposit amount was held on the conditions outlined in the agreement. The deposit amount was placed in trust for the vendor and purchaser until notice was received from them specifying how much of the deposit was to be paid to each of them.

The taxpayer treated the deposit amount as part of the consideration received for the disposal of the shares in the calculation of its net capital gain for the 1997-98 income year.

Several years later it was determined, in accordance with the agreement, that the deposit amount be repaid to the purchaser.

The taxpayer sought to amend their assessment for the 1997-98 income year to exclude the deposit amount from the consideration received for the disposal of the shares.

Reasons for Decision

Section 160ZF of the ITAA 1936 provided that where part of the consideration for the disposal of an asset was not likely to be received, a taxpayer could treat the consideration as not including that amount if the non-receipt was not attributable to an act or thing done by the taxpayer.

Taxation Determination TD 93/44 states that section 160ZF of the ITAA 1936 only operated if the consideration payable by the purchaser was not received by the vendor. It did not apply if the vendor was required to repay an amount to the purchaser. TD 93/44 continues to apply to disposals of assets occurring before the 1998-99 income year.

In this case, the deposit amount was placed in trust until notice was received from the vendor and purchaser specifying how much of the deposit was to be paid to either or both of them. No party was beneficially entitled to the deposit until it was determined that the amount should be paid to the purchaser (Harmer & Ors v. Federal Commissioner of Taxation (1991) 173 CLR 264; (1991) 22 ATR 726; 91 ATC 5000). Accordingly, section 160D of the ITAA 1936 did not apply to treat the taxpayer as having received the deposit at the time of the contract.

As the deposit was never actually received by the taxpayer section 160ZF of the ITAA 1936 can operate in this case. Accordingly, the consideration for the disposal of the shares can be reduced by the deposit amount.

Note: section 116-50 of the ITAA 1997 which was introduced in respect of CGT events happening for the 1998-99 and later income years specifically provides that the capital proceeds for a CGT event are reduced by any part of them that are repaid.

Year of income:  Year ended 30 June 1998

Legislative References:
Income Tax Assessment Act 1936
   section 160D
   section 160ZF
   subsection 160ZF(1)

Case References:
Harmer v. Federal Commissioner of Taxation
   (1991) 173 CLR 264
   (1991) 22 ATR 726
   91 ATC 5000

Related Public Rulings (including Determinations)
Taxation Determination TD 93/44

Keywords
Disposal of shares
Nominees

Business Line:  Losses and Capital Gains Tax Centre of Expertise

Date of publication:  17 October 2003

ISSN: 1445-2782