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Ruling
Subject: Income Capital Gains Tax - capital loss
Question 1
During the financial year ending 30 June 2011, did Capital Gains Tax (CGT) event G3 happen under section 104-145 of the Income Tax Assessment Act 1997 (ITAA1997) on your debentures?
Answer
No.
Question 2
Can any capital gain upon the sale of your real estate investment be offset against any capital losses from your debentures during year ending 30 June 2011?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
You sold a real estate investment during the 20XX financial year. A capital gain resulted in an income tax liability.
You also have a debenture issued in a company that is in liquidation and there appears no distribution for creditors will be available.
The liquidator has not issued a letter of expected return at this stage.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 102-25.
Income Tax Assessment Act 1997 Section 104-145.
Does Part IVA apply to this ruling?
Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.
We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.
If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.
For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: 'Part IVA: the general anti-avoidance rule for income tax'.
Reasons for decision
Unless otherwise stated, all references in the following Reasons for Decision are to the ITAA 1997.
Capital gains tax (CGT) is the tax you pay on certain gains you make. A capital gain or loss can only arise if a CGT event happens section 102-20.
The capital gain on the real estate investment can only be offset against a capital loss if a CGT event happened in respect of the debentures issued by Capital Access Financial Pty Ltd.
Section 102-25 provides that if more than one CGT event happens, the one that is most specific to the taxpayer's situation applies.
The most appropriate CGT event in your case would be G3 because a liquidator has been appointed.
CCGT event G3 under section 104-145 occurs if you own a share or financial instrument in a company and its liquidator or administrator declares in writing that there is no likelihood that the debtors of the company, or shareholders of a relevant class of shares, will receive any further distribution in the course of winding up the company. If this CGT event occurs, you can choose to make a capital loss equal to the reduced cost base of your share at the time of the declaration.
A debenture is included in the definition of financial instrument under subsection 104-145(3) (a).
At this point in time, the liquidator has not made such a declaration. You therefore are unable to offset a capital loss at this time as no CGT event has occurred to the debentures and as such no capital loss arises.
However, if the liquidator makes such a declaration in a future year, the capital losses will be available at that time.