ATO ID 2003/116: Deferred capital loss or deduction: greater than 50% interest - new event
Date of decision: 14 January 2003
Year of income: Year ending 30 June 2003
Business line: Public Groups and International

Issue
Does a new event happen for the purposes of subsection 170-275(1) of the Income Tax Assessment Act 1997 (ITAA 1997) where the relevant capital gains tax (CGT) asset is acquired by more than one entity, none of which, considered in isolation, acquires a greater than 50% interest in it?

Decision
Yes. Where interests in the relevant CGT asset exceeding 50% in total are acquired by more than one entity, that is not excluded by paragraph 170-275(1)(b) of the ITAA 1997, a new event is taken to have occurred.

Facts
The taxpayer, company P, disposed of a CGT asset to its 100% owned subsidiary, company S. The disposal of the CGT asset resulted in CGT event A1 happening for the purposes of subsection 104-10(1) of the ITAA 1997. The capital proceeds were less than the asset's reduced cost base and the taxpayer made a capital loss in accordance with subsection 104-10(4) of the ITAA 1997. Company P and company S were linked at the time of the CGT event for the purposes of subsection 170-260(2) of the ITAA 1997 so that the capital loss was disregarded pursuant to section 170-270 of the ITAA 1997. Company S subsequently disposed of the CGT asset to two other companies who each acquired a 50% interest in it. For the purposes of paragraph 170-275(1)(b) of the ITAA 1997 neither of the other companies were, at the time of acquiring their interests in the CGT asset, part of the same linked group as company P, nor a connected entity or an associate of a connected entity.

Reasons for decision
Summary: Paragraph 170-275(1)(b) of the ITAA 1997 refers to a new event where: '...the relevant CGT asset, or a greater than 50% interest in it, is acquired by an entity that is none of the following: i) a member of the linked group of which the originating company is a member, ii) a connected entity of the originating company, iii) an associate of such a connected entity...' In applying the singular word 'entity' in paragraph 170-275(1)(b) of the ITAA 1997 it is considered that the word entity should also be construed as 'entities' by regard to paragraph 23(b) of the Acts Interpretation Act 1901 which provides that: 'In any Act, unless the contrary intention appears: (a) ... (b) words in the singular number include the plural...' As paragraph 170-275(1)(b) of the ITAA 1997 applies then, pursuant to subsection 170-275(1) of the ITAA 1997, company P is taken to have made a capital loss at the time of the new event equal to the amount of capital loss that was previously disregarded because of section 170-270 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 104-10(1) subsection 104-10(4) subsection 170-260(2) section 170-270 section 170-275 subsection 170-275(1) paragraph 170-275(1)(b)
Related ATO interpretative decisions: ATO ID 2003/67
Subject references: Capital losses Net capital losses Capital gains tax CGT roll-over relief Company losses Deferred capital losses Deferred capital losses and deductions Connected entity Deferral event Disregarded capital loss New event Linked group Originating company Relevant CGT asset