ATO ID 2001/799: Capital gains tax: capital losses: rights in relation to non-resident company
Date of decision: 28 November 2001
Year of income: Year ended 30 June 2001
Business line: Public Groups and International

Issue
Has any CGT event in Division 104 of the Income Tax Assessment Act 1997 (ITAA 1997) happened to enable the taxpayer to make a capital loss in relation to their right to sue a Thai securities firm?

Decision
No. As no CGT event in Division 104 of the ITAA 1997 has happened to the right to sue the securities firm, the taxpayer is unable to claim a capital loss. If a CGT event occurs in relation to the taxpayer's rights in the future, the taxpayer may make a capital loss at that time.

Facts
The taxpayer received an offer to invest in a non-resident company through a securities firm based in Thailand. The taxpayer forwarded US dollars to the firm's bank accounts overseas. The taxpayer has not received share certificates for their investment. The Thai securities firm has been under investigation by authorities in Thailand in relation to their investment activities. The taxpayer has not been able to contact the company or the securities firm to determine the exact status of their investment. The taxpayer suspects that their investment may have been embezzled and that they do not own any shares.

Reasons for decision
Summary: Section 102-20 of ITAA 1997 provides that you make a capital gain or capital loss if and only if a CGT event happens. The gain or loss is made at the time of the CGT event. If the taxpayer's investment has been embezzled the relevant CGT asset will be the right to sue the Thai securities firm to seek compensation for their loss. The CGT event that may be relevant in this situation is CGT event C2 - cancellation, surrender and similar endings (section 104-25 of the ITAA 1997). CGT event C2 occurs if the CGT asset ends by cancellation, surrender, redemption, release, discharge, satisfaction, abandonment, surrender, or forfeiture of an intangible CGT asset (subsection 104-25(1) of the ITAA 1997). As the taxpayer has been unable to establish that any of these actions have occurred in relation to the right to sue, CGT event C2 has not occurred at this time. The taxpayer has not made a capital loss at this time. The taxpayer may make a capital loss in the future when CGT event C2 occurs.

Legislative references: Income Tax Assessment Act 1997 section 102-20 section 104-25 subsection 104-25(1)
Related ATO interpretative decisions: ATOID 2001/800
Subject references: Capital gains tax Capital losses Confirmed significant issues CGT events C1-C3 - end of a CGT asset