Private ruling: Capital gains tax - loss on investment
Published: July 2014
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Question and Answer: | Has any capital gains tax (CGT) event in Division 104 of the Income Tax Assessment Act 1997 (ITAA 1997) happened which would enable The X Family Trust to make a capital loss in respect of its investment in Company A? | Yes

Relevant facts and circumstances: The X Family Trust is a resident of Australia for tax purposes. The X Family Trust purchased shares in Company A in a foreign country after 1985. The accounts of Company A for several years show no revenue, a low cash balance and a significant working capital deficit. Company A has not filed periodic reports with the regulatory body of the foreign country for several years. On date M in the relevant income year the Commissioner of the regulatory body of the foreign country revoked the shares of Company A. There has been no declaration made by a liquidator or administrator of Company A that the shares held by The X Family Trust have no value.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20. | Income Tax Assessment Act 1997 Subsection 102-25(1). | Income Tax Assessment Act 1997 Section 104-10. | Income Tax Assessment Act 1997 Section 104-25. | Income Tax Assessment Act 1997 Subsection 104-25(1). | Income Tax Assessment Act 1997 Section 104-145. | Income Tax Assessment Act 1997 Subsection 104-145(1). | Income Tax Assessment Act 1997 Subsection 104-145(2).

Reasons for decision: Summary: 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. The CGT events that may be relevant to The X Family Trust are: CGT event A1 Disposal of a CGT asset (section 104-10 of the ITAA 1997) CGT event G3 Liquidator or administrator declares financial instruments worthless (section 104-145 of the ITAA 1997). CGT event C2 Cancellation, surrender or similar endings (section 104-25 of the ITAA 1997) and If more than one CGT event can happen, the one you use is the one that is the most specific to your situation (subsection 102-25(1) of the ITAA 1997). | Detailed Reasoning - CGT event A1: CGT event A1 happens if you dispose of a CGT asset (subsection 104-10(1) of the ITAA 1997). As The X Family Trust has not disposed of any shares in Company A, CGT event A1 has not happened. | Detailed Reasoning - CGT event G3: CGT event G3 happens when the liquidator or administrator of a company makes a written declaration that they have reasonable grounds to believe that, for financial instruments, the instruments, or a class of instruments that includes instruments of that kind, have no value or have only negligible value (subsections 104-145(1) and 104-145(2) of the ITAA 1997). In this case there is no indication that the relevant declarations under subsection 104-145(1) of the ITAA 1997 have been made by a liquidator or administrator of Company A that the shares held by The X Family Trust have no value. Thus CGT event G3 has therefore not happened at this time in respect of the shares. | Detailed Reasoning - CGT event C2: CGT event C2 (section 104-25 of the ITAA 1997) happens if ownership of an intangible CGT asset ends by the asset: (a) being redeemed or cancelled (b) being released, discharged, or satisfied (c) expiring or (d) being abandoned, surrendered or forfeited. In this case, the Commissioner of the regulatory body revoked the Company A shares on date M in the relevant income year. As the shares have been revoked, they have been cancelled and CGT event C2 happened on date M. Therefore The X Family Trust made a capital loss on that date.