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Edited version of private advice
Authorisation Number: 1051848384924
Date of advice: 13 July 2021
Ruling
Subject: CGT - losses - liquidation or administration
Question
Can you claim a capital loss for the acquired convertible notes in the private company which went into liquidation under section 104-145 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
The Liquidator has declared that they have no reasonable grounds to believe, as detailed in the Liquidator's Statutory Report that "we do not expect there to be a dividend to unsecured creditors". Therefore, the entity's convertible notes have no value or have any negligible value.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 May 20XX
Relevant facts and circumstances
The entity acquired convertible notes in the private company with a total face value of $XXX,XXX. The convertible noteholders of the private company are classified as unsecured creditors.
Sometime ago, the private company entered administration and at the second meeting of creditors it was resolved to wind up the company and appointed a Liquidator.
Soon after, the Liquidator's Report by Administrators at Section X.X stated:
"The estimated dividend to all other creditors, including unsecured creditors... is nil."
Sometime later, the Liquidator issued a Statutory Report by Liquidator. In Section X.X of this report, the Liquidator stated the following:
"Due to the shortfall of realisable assets in the Liquidation of the Company and pending further developments in our investigations, we do not expect there to be a dividend to unsecured creditors."
Since the Statutory Report by Liquidator, there has been no indication or communication that the dividend amount to unsecured creditors will change.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-145