ATO Interpretative Decision
ATO ID 2003/312
Income Tax
Deferred capital loss or deduction: ceases to exist - relevant CGT asset split into new assetsFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 a 'relevant CGT asset' (as defined in paragraph 170-275(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)) is split into two or more 'new assets' (as defined in paragraph 112-25(1)(a) of the ITAA 1997) can it also be taken that it 'ceases to exist' for the purposes of paragraph 170-275(1)(a) of the ITAA 1997?
Decision
No. The reference to the term 'ceases to exist' in paragraph 170-275(1)(a) of the ITAA 1997 in relation to a relevant CGT asset pertains to the existence of the underlying property or right that constituted the relevant CGT asset and not its status as a particular CGT asset.
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, the relevant CGT asset acquired by the other entity was split into two new assets.
The new assets are still beneficially owned by the other entity.
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 'ceases to exist'.
The term 'ceases to exist' is not defined in the ITAA 1997 and must be interpreted having regard to the ordinary meaning of that term in the context of Subdivision 170-D of the ITAA 1997.
The reference to the 'relevant CGT asset' in paragraph 170-275(1)(a) of the ITAA 1997 focuses on whether the underlying property or right that constituted the relevant CGT asset ceases to exist.
The splitting of a relevant CGT asset two or more new CGT assets without the underlying property or right itself ceasing to exist and with no concomitant change in beneficial ownership, does not invoke the operation of paragraph 170-275(1)(a) of the ITAA 1997.
Note: The term ceases to exist 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: 26 March 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
section 112-25
subsection 112-25(1)
paragraph 112-25(1)(a)
Subdivision 170-D
subsection 170-255(1)
paragraph 170-255(1)(a)
section 170-255
section 170-270
paragraph 170-275(1)(a)
subsection 170-275(1)
section 170-275
paragraph 170-280(3)(a)
ATO ID 2003/311
ATO ID 2003/313
ATO ID 2003/314
Keywords
Capital losses
Deferral event
Deferred capital losses
Disregarded capital loss
Losses and Capital Gains Tax CoE
Net capital losses
New event
Originating company
Relevant CGT asset
ISSN: 1445-2782
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