Private ruling: Non-receipt of capital proceeds
Date of advice: 2 April 2020
Published: May 2020
Ruling period: Financial year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Can the amount of capital proceeds recorded for the sale of shares for the 201XX income year be reduced by amounts not received, in accordance with section 116-45 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes Having considered your circumstances and the relevant factors, you can reduce the capital proceeds from the capital gains tax (CGT) event (sale of shares), by the amount not received. The non-receipt of cash payments owed as consideration for the sale of shares in May 20XX was not due to anything that you have done or failed to do. You included this amount in the capital proceeds for the CGT event for the 20XX income year. The amounts remain outstanding and are unlikely to be received despite you taking all reasonable steps to recover them.

Relevant facts and circumstances: You are a self-managed superannuation fund. You sold shares in two companies to an individual purchaser under separate share purchase agreements for total consideration of $XXX. Each share purchase agreement signed late in the income year, provided for the consideration to be paid in two tranches, with payment dates determined by a separate business sale. The first tranches that represented 80% of the total consideration was paid in the month of the business sale which occurred early in the following income year (July 20XX). You then lodged your tax return for the previous income year, declaring the full sale agreement consideration amount of $XXX as sale proceeds in the capital gains calculation from the sale of the shares. However, in the subsequent income year, you did not receive the second tranches being the remaining 20% of the consideration, which was due for payment on the first anniversary of the business sale (July 20XX). You attempted to recover the unpaid consideration by way of numerous phone calls, email communications and meetings with the purchaser in the following seven month period. Your accountant sort legal advice that provided you an estimated cost of recovery action of between half and three quarters of the amount owed, with no surety of success, given the purchasers limited capital assets. After considering the cost versus chance of recovery, your trustees made a commercial decision not to pursue legal action as it was not commercially warranted. You subsequently received a letter from the purchaser acknowledging your repeated attempts to recover the money owed. The letter provided that the purchaser was not in a position to repay the debts in the foreseeable future, as their income stream had been halved and their spouse had a serious illness.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 116-45.