Private ruling: Disposal of CGT assets
Published: March 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Can you claim a capital loss for disposal of the pre CGT shares you held in Company A? | A1: No. | Q2: Can you claim a capital loss for the disposal of post CGT shares you held in Company A? | A2: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You owned shares in a number of companies - Company A, Company B, Company C, Company D Company E, Company F, Company G, Company H and Company I. One of the companies (Company A) shares were purchased prior to 1985. Company A went into liquidation in 2009. In 2007 you received renounceable rights as a result of holding the shares in Company A. You did not exercise these renounceable rights. You owned shares in other companies, some of which you acquired prior to 20 September 1985 and others you received as a result of the passing of your spouse. Some of the shares you received as a result of the passing of your spouse were acquired prior to 20 September 1985. Some of the shares you acquired were acquired prior to 11.45am (by legal time in the ACT) on 21 September 1999. In 2011 you transferred your shares in Company B, Company C, Company D , Company E, Company F , Company G, Company H and Company I to your child. The amount used to value the shares on transfer date was the market value of the shares on the day of transfer. Some of the shares you disposed of had been the subject of a private ruling regarding their disposal; the private ruling established the cost base of the shares and explained the Capital Gains Tax (CGT) implications brought about by their disposal.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-25, | Income Tax Assessment Act 1997 Section 104-10, | Income Tax Assessment Act 1997 Section 104-135 | Income Tax Assessment Act 1997 Section 116-20, | Income Tax Assessment Act 1997 Section 116-30, | Income Tax Assessment Act 1997 Section 110-25, | Income Tax Assessment Act 1997 Section 110-55, | Income Tax Assessment Act 1997 Section 112-15, | Income Tax Assessment Act 1997 Section 114-1, | Income Tax Assessment Act 1997 Subsection 130-45(2) | Taxation Administration Act 1953 Section 357-105 of Schedule 1 And | Taxation Administration Act 1953 Subsection 357-105(2) of Schedule 1

Reasons for decision: Summary: You can claim a loss for the liquidation of your shares in Company A. | Detailed Reasoning - Detailed reasoning: You held shares in Company A. You received notification from an accountant that Company A was in liquidation. Company A was subsequently deregistered by the ASIC. The deregistration triggered capital gains tax (CGT) event C2. You can make a capital gain or capital loss only if a CGT event happens. Most CGT events involve a CGT asset, CGT assets include but are not limited to , land and buildings, units in a unit trust , collectables which cost over $500 and personal use assets which cost over $10,000. The de-registration of Company A triggered event C2. CGT event C2 happens if your ownership in an intangible CGT asset ends by the asset: (a) being redeemed or cancelled; or (b) being released, discharged or satisfied; or (c) expiring; or (d) being abandoned, surrendered or forfeited; or (e) if the asset is an option - being exercised; or (f) if the asset is a convertible interest - being converted. The time of the event is (a) when you enter into the contract that results in the asset ending; or (b) if there is no contract - when the asset ends. You make a capital gain if the capital proceeds from the ending are more than the asset's cost base. You make a capital loss if those capital proceeds are less than the asset's reduced cost base. A capital gain or capital loss is disregarded if you acquired the asset before 20 September 1985. As you acquired some shares in Company A prior to 20 September 1985, you are not entitled to a capital loss on the ending of the shares. You acquired an amount of shares in Company A through a renounceable rights issue. Under sub section 130-45(2) of the Income Tax Assessment Act 1997 (ITAA 1997) rights issued in respect to pre CGT shares but exercised post CGT, have the date of acquisition for the rights as being the date the rights are exercised. As a result the shares you received through the renounceable rights issue are considered post CGT assets. Generally, CGT event G1 occurs if a company makes a payment to you in respect of a share you own in the company, some or all of the payment is not a dividend and the payment is not included in your assessable income. However, sub section 104-135(6) of the ITAA 1997 provides that you disregard a payment by a liquidator if the company is dissolved within 18 months of the payment. Any payment made within this time frame will be part of your capital proceeds for CGT event C2. In your case, you received a payment from the liquidators and Company A was subsequently deregistered within the 18 month time frame prescribed in within the legislation. The payment from the liquidators is your capital proceeds from CGT event C2 occurring. The cost base of the post CGT shares is the market value of the rights on exercise date plus any amount paid to exercise them. Subtracting the cost base from the proceeds will result in a capital loss. | Summary: You made a capital loss on the transfer of your Company B Limited shares. | Detailed Reasoning - CGT Event: You can make a capital gain or capital loss only if a CGT event happens. Most CGT events involve a CGT asset, CGT assets include but are not limited to , land and buildings, units in a unit trust, collectables which cost over $500 and personal use assets which cost over $10,000. The disposal of the shares you have acquired and transferred to your son triggers CGT event A1. The transfer of the shares will trigger CGT event A1. The time of event is when the change of ownership took place. You make a capital gain if the proceeds from the disposal are more than the asset's cost base. You make will a capital loss if the capital proceeds are less than the assets reduced cost base. The disposal of the Company B Limited shares triggered CGT event A1. As the shares were held for greater than twelve months, the discount method will be used to calculate any capital gain you may have made. To calculate your capital loss or capital gain on the disposal you subtract your cost base from any proceeds you received from the disposal. In this case, you received $X for the disposal of the shares. The cost base of the shares is $X (as per previous ruling issued) and any other costs associated with purchasing or holding the securities. When a CGT event happens to a CGT asset and you haven't made a capital gain you need the asset's reduced cost base to work out your capital loss. The reduced cost base of a CGT asset has the same five elements as the cost base except for any costs incurred in owning the asset. As you have not documented any additional costs incurred in relation to the shares, on the information provided a capital loss of $X will arise as a result of the disposal. The discount method allows you to discount your capital gains, however any capital losses must be offset against any capital gains before the discount is applied. | Summary: You made a capital gain on the disposal of your Company E shares. | Detailed Reasoning - Detailed reasoning: The disposal of the Company E shares to your child triggered CGT event A1. As the shares were held for greater than twelve months, the discount method will be used to calculate the capital gain or capital loss. The discount method involves subtracting your cost base from the capital proceeds received for the disposal. In this case, you received $X for the disposal of the securities. The cost base of the securities is $X (as per previous ruling issued) and any other costs associated with purchasing or holding the securities. As you have not documented any additional costs incurred in relation to the securities a capital gain of $X will arise as a result of the disposal. The discount method allows you to discount your capital gains, however any capital losses must be offset against any capital gains before the discount is applied. | Summary: You made a capital loss on the disposal of the shares you purchased in Company F. You received some shares in Company F on the passing of your spouse. Your spouse initially purchased these shares as shares in Company FA. Company FA demerged Company F. Under the demerger, shareholders of Company FA received a capital return per ordinary share which was applied towards the acquisition of Company F. Company FA shareholders received one Company F share for each four Company FA shares owned at the time of the demerger. The date of the acquisition for the Company F shares was specified and the shares at that time have a cost base of $X. As these shares were acquired after 20 September 1985, the first element of the cost base of the shares is taken to be the deceased person's cost base on the day the person died. This figure is $X per share. The cost base on the disposal of the shares you received from your spouse is $X. You also purchased parcels of shares in Company F. These purchases combined with the cost base of those shares you received from you spouse results in the first element of the cost base being $X. As mentioned previously, any other elements of the cost base such as brokerage fees and the cost of defending your ownership of the rights to your asset must also be taken into consideration. You received $X per share on the transfer of these shares to your child. You transferred shares to your son, giving you total proceeds of $X. On the information provided, on this occasion you have made a capital loss on the Company F Shares you transferred to your son of $X. | Summary: You made a capital gain on the disposal of your shares in Company I. | Detailed Reasoning - Detailed reasoning: You received a number of Company I shares on the passing of your spouse. As these shares were purchased by the deceased after 20 September 1985 they are considered post CGT assets. A post CGT asset of the deceased is taken to have been acquired by the beneficiary for the cost base of the asset in the hands of the deceased at the date of their death. Some parcels of shares were purchased by your spouse prior to their death. You also made additional purchases of shares in Company I You disposed of these share holdings to your child. The disposal of the shares generated $XX. As a number of the shares were held for less than 12 months, the 'other method' is used to calculate any capital gain that may arise on their disposal. This leads to the following amount. Cost base = ((X x $X. =X) + (X x X. = X)) $X. The capital proceeds received from the shares amounts to $X (X x $X) leading to a capital gain of $X on the disposal of the shares held for less than 12 months. As the remaining shares were held for greater than 12 months the discount method will be used for the calculation of the capital gain. This leads to the following amounts X shares at a cost of $X (shares inherited from your spouse) plus X shares at a cost of $XXX (shares you purchased held for greater than 12 months) leading to a cost base of $ X for the two parcels of shares. Proceeds received from the sale of these shares total $X. In order to calculate the capital gains under the discount method, the cost base ($X) is deducted form the capital proceeds ($X), this leads to an amount of $X. This is then added to the capital gain derived from those shares held for less than 12 months $X. Based on the information you have provided, the capital gain made on the disposal of Company I shares is $X. Please note, these calculations do not take into account any stamp duty, brokerage or any other elements of the cost base that may have been incurred during the purchase and holding of the Company I shares.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Issue 2: Amount of capital gains tax payable on disposal of shares | Question 1: Did you make a capital gain on the disposal of your Company B shares? | Question 4: Did you make a capital gain on the disposal of your Company E Limited shares? | Question 5: Did you make a capital loss on the disposal of the Company F shares? | Question 8: Did you make a capital gain on the disposal of your Company I shares?