ATO ID 2003/313: Deferred capital loss or deduction: ceases to exist - relevant CGT asset merged with another CGT asset into a new asset
Date of decision: 26 March 2003
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Where a 'relevant CGT asset' (as defined in paragraph 170-275(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)) is merged with another CGT asset into a 'new asset' (as defined in subsection 112-25(4) of the ITAA 1997) can it also be taken that it 'ceases to exist' for the purposes of paragraph 170-275(1)(a) of the ITAA 1997?

Decision
No. The reference to the term 'ceases to exist' in paragraph 170-275(1)(a) of the ITAA 1997 in relation to a relevant CGT asset pertains to the existence of the underlying property or right that constituted the relevant CGT asset and not its status as a particular CGT asset.

Facts
An 'originating company' (as defined in paragraph 170-255(1)(a) of the ITAA 1997) disposed of a CGT asset to another entity. The disposal of the CGT asset resulted in section 170-255 of the ITAA 1997 applying. As a consequence, a capital loss that the 'originating company' would otherwise have been entitled to was disregarded under section 170-270 of the ITAA 1997. Subsequently, the relevant CGT asset acquired by the other entity was merged with another CGT asset into a new asset. The new asset is still beneficially owned by the other entity.

Reasons for decision
Summary: Where a capital loss has been disregarded under section 170-270 of the ITAA 1997 the originating company is taken to have made an equivalent capital loss where a 'new event' happens under section 170-275 of the ITAA 1997. Paragraph 170-275(1)(a) of the ITAA 1997 provides that a new event happens where the relevant CGT asset 'ceases to exist'. The term 'ceases to exist' is not defined in the ITAA 1997 and must be interpreted having regard to the ordinary meaning of that term in the context of Subdivision 170-D of the ITAA 1997. The reference to the 'relevant CGT asset' in paragraph 170-275(1)(a) of the ITAA 1997 focuses on whether the underlying property or right that constituted the relevant CGT asset ceases to exist. The merging of a relevant CGT asset with another CGT asset into a new CGT asset without the underlying property or right itself ceasing to exist and with no concomitant change in beneficial ownership, does not invoke the operation of paragraph 170-275(1)(a) of the ITAA 1997. Note: The term 'ceases to exist' in paragraph 170-280(3)(a) of the ITAA 1997 is to be interpreted consistently with the interpretation used in applying paragraph 170-275(1)(a) of the ITAA 1997 given in this ATO Interpretative Decision.

Legislative references: Income Tax Assessment Act 1997 section 112-25 subsection 112-25(4) Subdivision 170-D subsection 170-255(1) paragraph 170-255(1)(a) section 170-255 section 170-270 paragraph 170-275(1)(a) subsection 170-275(1) section 170-275 paragraph 170-280(3)(a)
Related ATO interpretative decisions: ATO ID 2003/311 | ATO ID 2003/312 | ATO ID 2003/314
Subject references: Capital losses Deferral event Deferred capital losses Disregarded capital loss Losses and Capital Gains Tax CoE Net capital losses New event Originating company Relevant CGT asset