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Edited version of private advice
Authorisation Number: 1051662566462
Date of advice: 27 April 2020
Ruling
Subject: CGT and shares in a company in liquidation
Question
Can you recognise a capital loss in relation to your investments in shares in Company A in the income year ended 30 June 2019 in relation to CGT event G3 under section 104-145 of the Income Tax Assessment Act 1997?
Answer
No
This ruling applies for the following period:
1 July 20XX - 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You acquired shares in Company A in 20xx.
The cost base of these shares is $xxx.
Company A was subsequently delisted from the Australian Securities Exchange and Liquidators were appointed.
The Liquidators have recently provided an email to you stating that they are not yet in a position to declare the shares worthless pending the outcome of current legal proceedings.
You believe that you have lost all your investment in Company A and there is no hope of a recovery.
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 capital gains tax (CGT) event happens. Relevant for the purpose of this ruling is CGT event G3.
Subsection 104-145(1) of the ITAA 1997 provides that 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.
As the Liquidators have stated that they are not yet in a position to declare that the shares in Company A are worthless CGT event G3 has not happened and a capital loss has not arisen in relation to your investment in Company A.