ATO ID 2003/240: Deferred capital loss or deduction: option granted by a company to acquire shares in it ends
Date of decision: 24 February 2003
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Does Subdivision 170-D of the Income Tax Assessment Act 1997 (ITAA 1997) apply to disregard a capital loss a company made because CGT event C3 (section 104-30) of ITAA 1997 happened in respect of an option granted by the company?

Decision
No. Paragraph 170-255(1)(c) of the ITAA 1997 provides that Subdivision 170-D of the ITAA 1997 only applies to disregard a capital loss where a deferral event involves the happening of CGT event A1, B1, D1, D2, D3 or F1, not CGT event C3.

Facts
The originating company granted an option to another entity to acquire shares in the originating company. Upon the ending of the option, section 104-30 of the ITAA 1997 provided that CGT event C3 happened to the originating company, resulting in the originating company making a capital loss. Reasons for Decision Subsection 170-255(1) of the ITAA 1997 provides that Subdivision 170-D of the ITAA 1997 will apply if, among other things: For Subdivision 170-D of the ITAA 1997 to apply, paragraphs 170-255(1)(a) to (e) of the ITAA 1997 must be met. The granting of the option by the originating company was a deferral event for the purposes of paragraph 170-255(1)(a) of the ITAA 1997. The deferral event was a CGT event that would have resulted in the originating company making a capital loss for the purposes of subparagraph 170-255(1)(b)(i) of the ITAA 1997. As the deferral event only involved CGT event C3, the condition in paragraph 170-255(1)(c) of the ITAA 1997 is not satisfied. As not all of paragraphs 170-255(1)(a) to (e) of the ITAA 1997 apply, then section 170-270 of Subdivision 170-D of the ITAA 1997 does not apply to disregard the capital loss made by the originating company.

Reasons for decision

Legislative references: Income Tax Assessment Act 1997 section 104-30 Subdivision 170-D section 170-255 paragraph 170-255(1)(a) paragraph 170-255(1)(b) subparagraph 170-255(1)(b)(i) paragraph 170-255(1)(c) paragraph 170-255(1)(d) paragraph 170-255(1)(e) section 170-270
Subject references: Capital losses Deferral event Deferred capital losses Deferred capital losses and deductions Disregarded capital loss Net capital losses New event Originating company Relevant CGT asset