Edited version of private advice

Authorisation Number: 1052405768058

Date of advice: 11 June 2025

Ruling

Subject: Capital gains tax

Question 1:

Did capital gains tax event C2 occur during the ruling period in relation to the Loan?

Answer 1:

Yes.

Section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gains tax (CGT) asset is any kind or property, or a legal or equitable right that is not property. A debt owed to a lender is a CGT asset for the purposes of section 108-5 of the ITAA 1997.

CGT event C2 happens under subsection 104-25(1) of the Income Tax Assessment Act 1997 (ITAA 1997) if a taxpayer's ownership of an intangible CGT asset ends because the asset expires or is redeemed, cancelled, released, discharged, satisfied, abandoned, surrendered or forfeited.

In this case, when Company X was deregistered in accordance with the Corporations Law it ceased to exist and CGT event C2 happened to the debt owed to you at that point, being the Loan.

You will make a capital gain if the capital proceeds from the CGT event C2 occurring are more than the asset's cost base, and you will make a capital loss if those capital proceeds are less than the asset's reduced cost base.

Question 2:

Is any capital gain or loss you made due to the deregistration of Company X disregarded?

Answer

No.

Any capital loss you make from a personal use asset is disregarded under subsection 108-20(1) of the ITAA 1997.

Paragraph 108-20(2)(d) of the ITAA 1997 states that a personal use asset includes a debt arising other than in the course of gaining or producing your assessable income.

In this case, the Loan is not viewed as a person use asset under section 108-20 of the ITAA 1997. Therefore, any capital gain or loss made when CGT event C2 occurred when Company X was deregistered is not disregarded.

This ruling applies for the following period:

Year ended 30. June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are the director and sole shareholder of Company X.

Company X was established to trade and carry on a business of trading in financial assets with the intention to generate profits that could be distributed to you as dividends.

You entered into an interest-free loan agreement with Company X which included the following information:

•                The lent funds would be used as investing capital to be used by Company X in relation to its investing and trading business-free.

•                A specified maximum loan amount was specified.

•                The loan was interest-free, repayable on demand by you, unless otherwise agreed in writing, with no periodic payments being required unless agreed; and

•                You were entitled to receive all future profits and proceeds of Company X subject to the application of applicable laws and taxation obligations.

Company X's trading activities were undertaken on a trading platform (the Platform), with an account (the Account) linked to an online service.

You transferred funds over a period of some months during the same income year into the Account (being the Loan). At the end of the income year you had not been repaid the lent funds with Company X making a trading loss during that income year.

During the following income year:

•                Company X carried out further trades through the Platform for part of the income year, making a loss

•                Share parcels in several listed companies were transferred to you from Company X via an off-market transfer

•                Near the end of the income year Company X discontinued trading and the balance of the funds in the Account were paid to you; and

•                Part of the Loan will still outstanding, being the balance of the Loan amount after the shares and the Account funds were transferred to you.

Company X was deregistered during the following income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-25

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 108-20

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