Edited version of private advice

Authorisation Number: 1051805847637

Date of advice: 16 February 2021

Ruling

Subject CGT - losses - liquidation or administration

Question

Can you recognise a capital loss of $X for your financial instrument in the Company Group of Entities in the income year ended 30 June 20XX in relation to CGT event G3 under section 104-145 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

This ruling applies for the following period

Year ended 30 June 20XX

The scheme commences on

1 July 20XX

Relevant facts and circumstances

Company A and Company B are a part of the Company Group of Entities.

Sometime ago you entered into a contract with Company A and loaned them the amount of $X.

On the same day you entered into another contract with Company A and loaned them the amount of $X.

Sometime later you entered into another contract with Company A and loaned them the amount of $X..

The terms of all three loans are the completion of the Company Group of Entities Project.

Interest on the all three loans is at a rate of X% per annum.

Company Group of Entities went into voluntary administration.

Administrators were appointed (the Administrators) for the Company Group of Entities.

A short time later you received a letter (the letter) from the Administrators advising that creditors must complete a Proof of Debt form.

The letter form the Administrators also advised you the book value of the debt owed to you consisted of the following:

Company A - $X

Company B - $X

= $X

You have not received any written advice from the Administrators stating that there is no likelihood the creditors in Company Group of Entities will receive any distribution for their shares or financial instruments.

Assumption(s)

None

Relevant legislative provisions

Income Tax Assessment Act 1997 section 100-20

Income Tax Assessment Act 1997 section 104-145

Further issues for you to consider

None

Anti-avoidance rules

None

Reasons for decision

Section 100-20 of the 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 Administrators have not declared in writing that there is no likelihood the creditors in Company Group of Entities will receive any distribution for their shares or financial instruments, CGT event G3 has not happened and a capital loss has not arisen.

Therefore, you are unable to recognise a capital loss in relation to your financial investment in Company Group of Entities in your 2020 income tax return.