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Ruling
Subject: CGT - recovered losses after shares declared worthless
Question
Did you make a capital gain as an admitted creditor of company D during the year ending 30 June 2012?
Answer:
Yes.
This ruling applies for the following period:
Year ending 30 June 2012.
The scheme commenced on:
1 July 2004.
Relevant facts and circumstances
In 2004-2005 income year the Administrator issued a Notice to Shareholders stating that they had reasonable grounds to believe that there was no likelihood that shareholders in the company would receive any further distributions for their shares.
You lost your entire investment of Company D Ordinary Shares. You declared a tax loss for these in the 2004-05 income year. These shares were not destroyed or cancelled.
You submitted a claim to the Administrator for misleading or deceptive conduct and/or failure of continuous proper disclosure. You have received several payments as an admitted creditor from this claim in the year ending 30 June 2012.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 104-135(6).
Income Tax Assessment Act 1997 subsection 104-145(1).
Income Tax Assessment Act 1997 section 115-10.
Income Tax Assessment Act 1997 section 115-15.
Income Tax Assessment Act 1997 section 115-20.
Income Tax Assessment Act 1997 section 115-25.
Reasons for decision
Summary
You made a capital gain as an admitted creditor of Company D during the year ending 30 June 2012.
Detailed reasoning
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 declaration) that the instrument or class of instrument that includes instruments of that kind, have no value or have only negligible value.
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).
CGT event G1 occurs if a company makes a payment to you in respect to shares you own in a company where some or all of the payment is not a dividend and the payment is not included in your assessable income. However you disregard a payment by a liquidator if the company is dissolved within 18 months of the payment. Any payment made within this time frame will be part of your capital proceeds for CGT event C2. The CGT event occurs at the time of payment.
For a capital gain to be a discount gain the following needs to be satisfied:
· you are an individual, a trust or a complying superannuation entity,
· the CGT event happened after 11:45am on 21 September 1999,
· you did not choose the indexation method, and
· you acquired the asset at least twelve months before the CGT event.
In your case, for the year ending 30 June 2005 you chose to make a capital loss, reducing the cost base of your Company D shares to zero after the Administrator declared it was appropriate to do so.
In the year ending 30 June 2012, you received several payments as an admitted creditor is relation to these ordinary shares from the Administrator who was acting on behalf of Company D. These payments triggered a CGT event G1 and therefore this capital gain needs to be declared in your tax return for the year ending 30 June 2012.
At the time of this payment your cost base of your Company D shares was zero because you declared a capital loss previously. You have however held the asset, which is the shares for more than 12 months and therefore if you meet the requirements for a discount gain you are entitled to a 50% discount on this capital gain.