ATO Interpretative Decision

ATO ID 2003/696

Income Tax

Deferred capital loss or deduction: ceases to exist - lost relevant CGT asset - new event
FOI status: may be released

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Issue

Where pursuant to section 104-20 of the Income Tax Assessment Act 1997 (ITAA 1997) CGT Event C1 happens to a CGT asset because it is lost, can it also be taken that it 'ceases to exist' for the purposes of paragraph 170-275(1)(a) of the ITAA 1997?

Decision

Yes. Where CGT event C1 happens to a CGT asset that is lost it 'ceases to exist' for the purposes of paragraph 170-275(1)(a) of the ITAA 1997.

Facts

An 'originating company' (as defined in paragraph 170-255(1)(a) of the ITAA 1997) disposed of a relevant CGT asset to another entity.

The disposal of the relevant CGT asset resulted in section 170-255 of the ITAA 1997 applying, such that a capital loss that would otherwise have been made by the originating company was disregarded under section 170-270 of the ITAA 1997.

Subsequently, the relevant CGT asset was lost, believed stolen, resulting in CGT event C1 happening under section 104-20 of the ITAA 1997.

Reasons for Decision

Where a capital loss (or a deduction or share of a deduction) 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' (as defined in paragraph 170-275(1)(a) of the ITAA 1997) '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.

Where the other entity referred to in paragraph 170-255(1)(a) of the ITAA 1997 loses the relevant CGT asset such that CGT event C1 in section 104-20 of the ITAA 1997 occurs, it 'ceases to exist' for the purposes of paragraph 170-275(1)(a) of the ITAA 1997.

Date of decision: 3 July 2003

Year of income: Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   subsection 104-10(1)
   subsection 104-10(4)
   Subdivision 170-D
   section 170-270
   section 170-275
   subsection 170-275(1)
   paragraph 170-275(1)(a)
   subsection 170-280(1)
   subsection 170-280(2)

Keywords
Capital losses
Deferral event
Deferred capital losses
Disregarded capital loss
Further event
Losses and Capital Gains Tax CoE
Net capital losses
New event
Originating company
Realisation event
Relevant CGT asset

Siebel/TDMS Reference Number: 3450148

Business Line: Public Groups and International

Date of publication: 8 August 2003

ISSN: 1445-2782

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