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Ruling
Subject: Capital loss
Question
Are you entitled to claim a capital loss on units you held in a company that has been deregistered?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2009.
The scheme commenced on
1 July 2008.
Relevant facts
You acquired several thousand units in a company.
Part of your original investment was paid back.
The company was then deregistered.
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 116-20
Income Tax Assessment Act 1997 section 116-30
Reasons for decision
Capital gains tax:
Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event.
Specifically, there are several circumstances under which a capital loss may occur. A capital loss can occur when:
(a) A company ceases to exist,
(b) The liquidator of the company declares the units worthless, or
(c) The units are redeemed or cancelled.
In this case as the company was deregistered, it therefore ceased to exist and you are entitled to claim a capital loss.
CGT event C2:
CGT event C2 happens if the ownership of an intangible asset ends due to the asset being redeemed or cancelled. A company ceases to exist on deregistration and the units are redeemed or cancelled by the company. The time of the CGT event is when the contract that ends the asset is entered into or when the asset ends if there is no contract.
In this case CGT event C2 happened when the company was deregistered and the units in the company cancelled. It is on the date of deregistration that you can realise a capital loss on the units.
Calculating a Capital Loss:
Capital proceeds:
When CGT event C2 happens, you make a capital loss if those capital proceeds are less than the assets reduced cost base.
If you receive no capital proceeds from a CGT event, you are taken to have received market value of the asset that is the subject of the event. If you need to work out the market value of a CGT asset that is the subject of CGT event C2, work it out as if the event had not occurred and was never proposed to occur.
As the company was deregistered, the units will have a nil market value. Therefore, your capital proceeds will be nil.
Reduced cost base:
To calculate the reduced cost base of a CGT asset you need to add together the money paid for the asset plus any incidental costs incurred in the buying or selling of the asset and then reduce this by any amount of capital that has been returned to you. This will be the reduced cost base of the units.
Please note: A capital loss can only be used to reduce a capital gain it cannot be used to reduce other income.