Private ruling: Shares and capital gains tax.
Published: July 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Did CGT event G3 happen when your shares in Company X were declared worthless? | A1: Yes. | Q2: Did CGT event G1 happen when you received payments relating to your shares in Company X after the shares were declared worthless? | A2: Yes. | Q3: Are you entitled to the 50% discount on the capital gain made when CGT event G1 happened? | A3: Yes. | Q4: Can you include a capital gains discount not included in your income tax return for the year ended 30 June 2005 when calculating your capital gains liability in the income tax year ended 30 June 2012? | A4: No.

Relevant facts and circumstances: You purchased shares in Company X in the year ended 30 June 2005. Subsequently, in the year ended 30 June 2005, the administrators of Company X made the declaration that there were reasonable grounds to believe that there is no likelihood that shareholders will receive any further distribution for their shares. You included a capital loss in your income tax return for the year ended 30 June 2005. You made a capital gain in relation to shares held in other companies in the year ended 30 June 2005. You did not include any discount in relation to this capital gain. As a result of successful legal action by third parties, you received payments in the year ended 30 June 2012 relating to your ownership in the Company X shares.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 115-A. | Income Tax Assessment Act 1997 Section 104-135. | Income Tax Assessment Act 1997 Section 104-145.

Reasons for decision: Summary: Declaration of worthless shares A taxpayer makes a capital gain or capital loss only when a CGT event happens. CGT event G3 happens when a liquidator or administrator declares shares worthless. In your case, you purchased shares in Company X in the year ended 30 June 2005. CGT event G3 happened in June 2005 when the administrators of Company X made the declaration that there were reasonable grounds to believe that there is no likelihood that shareholders will receive any further distribution for their shares. You included a capital loss of $X in your income tax return for the year ended 30 June 2005. Further payments received after liquidator's declaration CGT event G1 happens in the situation where a further payment is received in respect of shares after a declaration is made by the liquidator that there are reasonable grounds to believe that there is no likelihood that shareholders will receive any further distribution for their shares, such as where action commenced that was successful in recovering money for its shareholders, and the payment is not assessable as a dividend, the recipient of the payment makes a capital gain at the time they receive the payment. In your case, you received payments in the year ended 30 June 2012 relating to your ownership in the Company X shares. As these payments were made after the liquidator's declaration was made, CGT event G1 happened each time you received a payment. You therefore are required to include the total capital gain you made from these CGT events in your income tax return for the year ended 30 June 2012. | Detailed Reasoning - Capital gains discount: A 50% discount on a capital gain is available where the capital gain is made by an individual, it resulted from a CGT event happening after 21 September 1999, the cost base has not been indexed, and it results from a CGT event happening to an asset owned by the taxpayer for at least 12 months. In your case, you are an individual, the CGT events happened in the year ended 30 June 2012 and relate to shares purchased in the year ended 30 June 2005, and you are not able to index the cost base. Therefore, you meet all the requirements and can apply the 50% discount on the capital gain made as a result of CGT event G1 happening. Relevance of discount not claimed in the year ended 30 June 2005 There is no provision in the tax legislation that allows you to take into account the discount that you did not claim in your income tax return in the year ended 30 June 2005 when calculating the capital gain made in the year ended 30 June 2012.

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