ATO ID 2003/417: Deferred capital loss or deduction: ceases to exist - relevant (intangible) CGT asset surrendered - new event
Date of decision: 11 April 2003
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Where CGT event C2 happens to an intangible CGT asset that is surrendered, can it also be taken that it 'ceases to exist' for the purposes of paragraph 170-275(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. Where CGT event C2 happens to an intangible CGT asset that is surrendered it 'ceases to exist' for the purposes of paragraph 170-275(1)(a) of the ITAA 1997.

Facts
An originating company (as defined in paragraph 170-255(1)(a) of the ITAA 1997) disposed of a relevant (intangible) CGT asset to another entity. The disposal of the relevant CGT asset resulted in section 170-255 of the ITAA 1997 applying. As a consequence, a capital loss that would have been made by the originating company was disregarded under section 170-270 of the ITAA 1997. Subsequently, the relevant CGT asset acquired by the other entity was surrendered, resulting in CGT event C2 happening under section 104-25 of the ITAA 1997.

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' acquired by the other entity '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. Where the relevant (intangible) CGT asset is surrendered such that CGT event C2 of the ITAA 1997 happens, it 'ceases to exist' for the purposes of paragraph 170-275(1)(a) of the ITAA 1997. Note that subsection 170-280(1) of the ITAA 1997 may apply if a further event occurs within 4 years. If subsection 170-280(1) of the ITAA 1997 applies the effect of subsection 170-280(2) of the ITAA 1997 is that the originating company will be taken not to have made the capital loss allowed by section 170-275 of the ITAA 1997. Note also that 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.

Legislative references: Income Tax Assessment Act 1997 section 104-25 Subdivision 170-D section 170-255 paragraph 170-255(1)(a) section 170-270 section 170-275 subsection 170-275(1) paragraph 170-275(1)(a) subsection 170-280(1) subsection 170-280(2) paragraph 170-280(3)(a)
Subject references: Capital losses Deferral event Deferred capital losses Disregarded capital loss Losses CoE Net capital losses New event Originating company Relevant CGT asset