ATO ID 2001/800: Capital gains tax: capital losses: shares in 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 on their investment, made through Thai securities firms, in shares in non-resident companies?

Decision
No. On the evidence available no CGT event in Division 104 of the ITAA 1997 has happened to the taxpayer's shares. The taxpayer is unable to claim a capital loss at this 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 received share certificates for their investment. The taxpayer attempted to telephone the securities firm to dispose of the shares in the company. The taxpayer also sent instructions to this firm to dispose of the shares but these instructions were never acted upon. The taxpayer has not received any notice that the company has been placed in liquidation or is in the process of being wound up or that their shares have ended.

Reasons for decision
Summary: Section 102-20 of the 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. The CGT events that may be relevant to the taxpayer's situation are: CGT event A1 - Disposal of a CGT asset (section 104-10 of the ITAA 1997); CGT event G3 - Liquidator declares shares worthless (section 104-145 of the ITAA 1997); and CGT event C2 - Cancellation, surrender and similar endings (section 104-25 of the ITAA 1997). As the taxpayer has not been able to contact the firm to dispose of their shares in the non-resident company, CGT event A1 has not occurred. As there is no evidence that a liquidator has been appointed or made a declaration that there is no likelihood that the shareholders in the company will receive any further distribution in the course of winding up the company then CGT event G3 has not occurred. CGT event C2 has also not occurred in these circumstances. The only circumstance that CGT event C2 may have occurred would be if the shares ended by being redeemed or cancelled in terms of paragraph 104-25(1)(a) of the ITAA 1997. There is no evidence that this has happened. Further it is considered that it is not possible to abandon or surrender a share in terms of paragraph 104-25(1)(d) of the ITAA 1997. The most appropriate CGT event to apply in this circumstance is CGT event G3. As no CGT events have occurred in relation to the taxpayer's shares, they have not made a capital loss at this time. The taxpayer may make a capital loss when they are able to establish that either CGT events A1, C2 or G3 occur. The taxpayer has been unable to determine whether their investment in these firms has resulted in the acquisition of legitimate shares. In the event that the shares are not legitimate, the taxpayer may have a right to sue the securities firms. The implications of this are outlined in ATOID 2001/799.

Legislative references: Income Tax Assessment Act 1997 section 102-20 section 104-10 paragraph 104-25(1)(a) paragraph 104-25(1)(d) section 104-145
Related ATO interpretative decisions: ATOID 2001/799
Subject references: Capital gains tax Capital losses Abandonment of assets Confirmed significant issues CGT event A1-disposal of a CGT asset CGT events C1-C3 - end of a CGT asset CGT events G1-G3 - shares