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Edited version of your private ruling
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Subject: Capital Gains Tax - Debentures
Question:
Can you claim a capital loss on your debenture holding in LKM Capital Ltd in the 2012 income year?
Answer:
No.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
You invested jointly with your wife an amount of money as a debenture holder in LKM Capital Ltd
The Company went into receivership in early 2009.
You have received to date a partial amount in distribution.
You have provided the following documents, which forms part of, and should be read in conjunction with this private ruling:
A report from the receivers and managers dated 21 April 2011 and entitled tenth report to debentureholders which indicates that you will receive a net distribution of between 45 and 55 cents in the dollar net as a final distribution.
You have been advised by the receivers and managers that the final distribution is not anticipated to occur for some time.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-145.
Income Tax Assessment Act 1997 Subsection 104-145(1).
Income Tax Assessment Act 1997 Subsection 104-145(1)(b).
Income Tax Assessment Act 1997 Section 102-20
Reasons for decision
You only make a capital gain or a capital loss if a capital gains tax (CGT) event occurs to an asset you own. You may make a capital loss if CGT event G3 happens then section 104-145 Income Tax Assessment Act 1997 (ITAA 1997) applies. CGT event G3 happens if you hold a financial instrument in a company and its liquidator or administrator declares in writing that he or she has reasonable grounds to believe (as at the time of the declaration) that the instruments or class of instruments that includes instruments of that kind, have no value or have only negligible value. (subsection 104-145(1)).
If this CGT event occurs, you can choose to make a capital loss equal to the reduced cost base of your shares (as at the time of the declaration) (subsection 104-145(1) (b)).
To date the receiver and manager has not made a declaration that satisfies the requirements of subsection 104 -145 and accordingly you can not choose to make a capital loss in relation to your debentures.
CGT event G3 may happen if LKM Capital Ltd is placed into liquidation at some time in the future or the liquidator makes a declaration that the debentues are worthless. In that case, as you acquired your debentures after 20 September 1985, you will then be able to choose to make a capital loss.