Private ruling: Capital gains tax
Date of advice: 11 April 2017
Published: September 2017
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Has a capital gains tax (CGT) event happened to your shares that would allow you to claim a capital loss? | A1: No. | Q2: If you were to transfer your shares to another entity for $1 will a CGT event happen that would allow you to claim a capital loss? | A2: No

Relevant facts and circumstances: You purchased a parcel of shares in a company. You received an official share certificate confirming your purchase of the shares. The company has now gone into liquidation. The liquidators have stated that investigations are ongoing and that a possible distribution will depend on the result of the investigations.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 102-25 | Income Tax Assessment Act 1997 Section 104-145

Reasons for decision: Summary: CGT event A1 in section 104-10 of the ITAA 1997 happens when there is a change in ownership of an asset from one entity to another. However, section 437F of the Corporations Act 2001 limits the way that a share can be transferred in a company that is in administration under Part 5.3A of that Act. It provides that 'a transfer of shares in a company or an alteration in the status of members of a company, that is made during the administration of the company is void except so far as the Court otherwise orders'. There are similar rules for liquidations in subsections 468(1) and 493(2) of the Corporations Act 2001. As court approval has not been obtained for any transfer of your shares, any transfer would be specifically negated by the relevant sections of the Corporations Act 2001 . Accordingly there would be no change to the ownership and no CGT event would occur.

Reasons for decision: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997), provides that you make a capital gain or capital loss if and only if a CGT event happens. The gain or loss is made at the time of the CGT event. | Section 102-25 of the ITAA 1997 provides that if more than one CGT event happens, the one that is most specific to the taxpayer's situation applies. | The most appropriate CGT event in your case is event G3 because a liquidator has been appointed. | CGT event G3 under section 104-145 of the ITAA 1997 occurs if you own a share or financial instrument in a company and its liquidator or administrator declares in writing that there is no likelihood that the debtors of the company, or shareholders of a relevant class of shares, will receive any further distribution in the course of winding up the company. If this CGT event occurs, you can choose to make a capital loss equal to the reduced cost base of your share at the time of the declaration. | At this point in time, the liquidator has not made such a declaration. You therefore are unable to offset a capital loss at this time as no CGT event has occurred to the shares and as such no capital loss arises. | However, if the liquidator makes such a declaration in a future year, the capital losses will be available at that time.