Edited version of your written advice

Authorisation Number: 1051352152847

Date of advice: 21 March 2018

Ruling

Subject: CGT loss on shares declared worthless

Question 1

Can the cost of your company 1 shares be claimed as a capital loss?

Answer

No.

Question 2

Can the cost of your company 2 shares be claimed as a capital loss?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Company 1 shares

You held x shares in company 1.

You received written notification of a consolidation of the company’s share capital which saw your pre consolidation holding of x shares become a post consolidation holding of y shares.

Administrators have been appointed to company1 however you have not yet received written advice as to the likelihood of a dividend to shareholders.

Company 2 shares

You held x shares in company 2.

Administrators were appointed to company 2 and have issued a statement inclusive of an independent expert report that valued the equity in company 2 as of nil value. A section 444GA application approved the transfer of all shares in company 2 to company 3 for nil consideration.

You received written notification in XX/20XX that an off market transfer had occurred and you now held no shares in company 2.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 100-20

Income Tax Assessment Act 1997 Section 104-145

Reasons for decision

Section 100-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states you can make a capital gain or loss only if a CGT event happens. CGT events in relation to shares include:

● CGT event A1: Disposal of a CGT asset

● CGT event C2: Cancellation, surrender and similar endings

● CGT event G3: Liquidator or administrator declares shares or financial instruments worthless

Subsection 104-145(1) of the ITAA 1997 provides that a CGT event G3 happens if you own shares in a company, or financial instruments issued by or created by or in relation to a company, and a liquidator or administrator of the company declares in writing that the liquidator or administrator has reasonable grounds to believe at the time of the declaration that:

● there is no likelihood that shareholders in the company, or shareholders in the relevant class of shares, will receive any further distribution for their shares; or

● the instruments, or class of instruments that includes instruments of that kind, have no value or have only negligible value.

Subsection 104-145(2) of the ITAA 1997 provides that the time of the event is when the declaration was made.

Subsection 104-145(4) of the ITAA 1997 provides that you can choose to make a capital loss equal to the reduced cost base of your shares or financial instruments at the time of the declaration.

Subsection 104-145(5) of the ITAA 1997 provides that if you make the choice, the cost base and reduced cost base of the shares or financial instruments are reduced to nil just after the declaration was made.

Company 1

You have not yet received written notification from the Administrators of Company 1 that there is no likely dividend payable to shareholders and that the shares in Company 1 have been declared worthless. As such CGT event G3 has not occurred and you cannot claim a capital loss in relation to your Company 1 shareholding.

Company 2

You have received written notification from the Administrators of Company 2 that there is no dividend payable to shareholders and that the shares in Company 2 have been declared worthless. As such CGT event G3 is considered to have occurred and you can claim a capital loss in relation to your Company 2 shareholding in the 20XX-XX financial year.