Private ruling: Capital gains tax - non-receipt of proceeds
Published: June 2012
Ruling period: Year ending 30 June 2008.
Date scheme commenced: 1 July 2007

Ruling: Q1: Can you amend your 2007-08 income tax return to reduce the amount of the capital proceeds that you received from your capital gains tax (CGT) event in accordance with section 116-45 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: You owned 50% of the shareholding in your company. This shareholding was sold during the 2007-08 financial year. The sale price included all of the shareholding plus an amount for the stock, assets, debtors and goodwill. The sale price was adjusted for one debtor who was outside terms, although the full sale amount without this adjustment was used to calculate the capital gain you declared. The sale agreement also stipulated that any debtors which were unrecoverable would have to be repaid to the purchaser. You have now been informed that the debtor is now in receivership and there is no prospect of receiving the amount outstanding.

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

Reasons for decision: Summary: The rules relating to capital proceeds are modified in some cases by other sections of the ITAA 1997. In the case where due proceeds are not received the relevant section is subsection 116-45(1) of the ITAA 1997 which provides that the capital proceeds from a CGT event are reduced if: (a) a taxpayer is not likely to receive some or all (the unpaid amount ) of those proceeds; and (b) this is not because of anything the taxpayer (or their associate) has done or omitted to do; and (c) the taxpayer took all reasonable steps to get the unpaid amount paid. The capital proceeds are reduced by the unpaid amount. This means that where a CGT event happens and a part or all of the proceeds are not received through no fault of the taxpayer and despite reasonable steps having been taken to have the amount recovered, capital proceeds can be reduced to the actual amount received. Where no money is received the proceeds would be nil. In your case, you have received notification that you will not receive an amount which constituted part of your capital proceeds. The reason for this non-receipt is due to the insolvency of a debtor and hence is not due to an action or omission on your part, and you had taken all reasonable steps to recover the unpaid amount. You are therefore entitled to amend your return for the 2007-08 income year to adjust the capital gain amount you have previously declared.

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