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Edited version of your private ruling
Authorisation Number: 1012541108047
Ruling
Subject: capital loss
Question 1
Has there been a capital gains tax event in relation to your investments?
Answer
No.
Question 2
Are you entitled to a capital loss in relation to your investments?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts
You have investments in entity A.
Entity A has been placed into liquidation.
You have been recently advised by the liquidator that a return to unit holders is totally dependent upon successful outcomes in relation to actual and proposed legal actions together with the receivers achieving a satisfactory outcome with the sale of the assets. It has not yet been determined if there will be a return to creditors.
You don't believe that you will receive any remuneration, recoupment, refund or other return from entity A.
You also have other investments in entity B. You submitted a redemption request for this investment and were informed that unfortunately, entity B is not liquid and they were unable to process a withdrawal request.
At a meeting of unit holders of entity B, a resolution was passed to change the terms and entity B will expire in 2015. As such entity B is working on a program to dispose of the assets.
You were advised that it is difficult to predict where the unit price will end up.
You believe that it is unlikely that you will ever receive any remuneration, recoupment, refund or return from entity B.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-145
Income Tax Assessment Act 1997 Section 108-5.
Reasons for decision
Capital gains tax provisions
Your units in entity A and entity B are capital gains tax (CGT) assets (section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997)).
Section 102-20 of the ITAA 1997 states that a capital gain or capital loss is made only if a CGT event happens. The gain or loss is made at the time of the CGT event.
CGT event A1 as outlined in section 104-10 of ITAA 1997 occurs when you dispose of a CGT asset.
CGT event C1 as outlined in section 104-20 of ITAA 1997 occurs when a CGT asset is lost or destroyed.
CGT event G3 as outlined in section 104-145 of ITAA 1997 occurs when a liquidator or administrator declares shares or financial instruments are worthless.
In your case, you have not disposed of or lost your units, however CGT event G3 is relevant.
In the event of the dissolution (winding up) of a company, a CGT event occurs when the company is wound up. While a company remains in administration or liquidation, the CGT event has not yet occurred and you are not able to make a capital loss or gain at that time.
However, in certain circumstances you can choose to realise a capital loss on worthless shares or financial instruments before the dissolution of a company. CGT event G3 occurs if a liquidator or administrator of a company declares in writing that they have reasonable grounds to believe that there is no likelihood that owners will receive any further distribution from the company in the course of its winding up (subsection 104-145(1) of the ITAA 1997).
If this declaration is made, the owners of the relevant asset can choose to make a capital loss at the time of the declaration (subsections 104-145(2) and 104-145(4) of the ITAA 1997).
You are entitled to claim the capital loss on your investments in an income year when either:
· the administrator makes a declaration that there is no likelihood that you will receive any further distribution AND you choose to realise the capital loss at that time, OR
· when a court orders that the company be dissolved (wound up).
In your case, you purchased units in entity A that is now in liquidation. However, entity A has not yet been wound up and the liquidator or administrator has not declared that there is no likelihood that you will receive any further distribution. Accordingly you are not entitled to a capital loss in respect of your entity A investments.
Similarly, entity B has not been wound up and still exists. Therefore, it can not be said that entity B will not make any further distribution. No other CGT event is relevant in your circumstances. It follows that a CGT event in relation to your investments has not occurred. Therefore you are not entitled to a capital loss.
It is acknowledged that your investments may not be in a good financial position, however as outlined above, the legislation does not allow you to claim a capital loss in relation to your investments until a CGT event has happened.