Private ruling: Capital gains tax
Published: September 2014
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the liquidators distribution payment assessable as a capital gain? | A1: Yes.

Relevant facts and circumstances: You previously owned shares in a company. You declared a capital loss in relation to these shares in the 2005-06 financial year as a declaration was made by the Administrators that the shares were worthless. In 2014 you received a cheque for $X. The accompanying letter explained that it was a liquidators distribution payment. The letter also details that this payment represents a capital return of X cents per share.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-145

Reasons for decision: Summary: Shareholders are able to choose to make a capital loss if a liquidator or an administrator of a company declares in writing that they have reasonable grounds to believe that there is no likelihood that shareholders will receive any further distribution for their shares. If you choose to make the capital loss when the declaration is made, your capital loss is equal to the reduced cost base of the shares at the time of the declaration by the liquidator or administrator. The cost base and reduced cost base of the shares are reduced to nil just after the liquidator or administrator makes the declaration. This is relevant for working out if you make a capital gain from any later CGT event happening to the shares. You indicate that you have chosen to make the capital loss by the amounts you show at the capital gains tax question on your tax return for that year. Further payments received by shareholders after the declaration You may receive a further payment in respect of your shares if, for example, court action commenced that was successful in recovering money for the company or its shareholders. If you receive such a payment after the date of the declaration and the payment is not assessable to you as a dividend, you may make a capital gain at the time you receive the payment. In this case, you have received a payment that has been identified as a return of capital. This payment will be assessable to you under the capital gains tax provisions. As the cost base of your shares was reduced to nil after declaring a capital loss in the 2005-06 financial year, you will make a capital gain equal to the amount of the liquidators distribution payment. If you have carried forward capital losses, you are entitled to apply them to reduce your capital gain.