| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012693086010
Ruling
Subject: Capital gains tax
Question
Is the liquidators distribution payment assessable as a capital gain?
Answer
Yes.
This ruling applies for the following period
Year ending 30 June 2015
The scheme commences on
1 July 2014
Relevant facts and circumstances
You previously owned shares in a company.
You declared a capital loss in relation to these shares in the 2005-06 financial year as a declaration was made by the Administrators that the shares were worthless.
In 2014 you received a cheque for $X. The accompanying letter explained that it was a liquidators distribution payment.
The letter also details that this payment represents a capital return of X cents per share.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-145
Reasons for decision
Shareholders are able to choose to make a capital loss if a liquidator or an administrator of a company declares in writing that they have reasonable grounds to believe that there is no likelihood that shareholders will receive any further distribution for their shares. If you choose to make the capital loss when the declaration is made, your capital loss is equal to the reduced cost base of the shares at the time of the declaration by the liquidator or administrator.
The cost base and reduced cost base of the shares are reduced to nil just after the liquidator or administrator makes the declaration. This is relevant for working out if you make a capital gain from any later CGT event happening to the shares.
You indicate that you have chosen to make the capital loss by the amounts you show at the capital gains tax question on your tax return for that year.
Further payments received by shareholders after the declaration
You may receive a further payment in respect of your shares if, for example, court action commenced that was successful in recovering money for the company or its shareholders. If you receive such a payment after the date of the declaration and the payment is not assessable to you as a dividend, you may make a capital gain at the time you receive the payment.
In this case, you have received a payment that has been identified as a return of capital. This payment will be assessable to you under the capital gains tax provisions. As the cost base of your shares was reduced to nil after declaring a capital loss in the 2005-06 financial year, you will make a capital gain equal to the amount of the liquidators distribution payment.
If you have carried forward capital losses, you are entitled to apply them to reduce your capital gain.