Private ruling: Capital gains tax – liquidation – final distribution – court action – deed of settlement – realise capital loss
Date of advice: 23 January 2019
Published: May 2019
Ruling period: Year ended 30 June 2018.
Date scheme commenced: 1 July 2017.

Ruling: Q1: Did CGT event C2 occur on XX XXX 20XX when the settlement deed was entered into by the plaintiffs and Company B Limited? | A1: Yes. It is considered that on the XX XXX 20XX a contract was entered into to that resulted in the ending of the asset owned by you. As a result you are able to realise the capital loss or capital gain as this point.

Relevant facts and circumstances: Individual A invested a total of $XXX,XXX in Notes issued by Company A in three separate transactions. ● $XXX,XXX of Notes purchased on or before Date A (Notes A); and ● $XXX,XXX of Notes purchased on or after Date B (Notes B). A few years after Individual A purchased the Notes administrators were appointed to Company A. Approximately six and 12 months after the administrators were appointed to Company A, distributions were made to secured noteholders, this included Individual A. Sometime later Individual A passed away. A few months after Individual A passed away a further distribution was made to secured noteholders; this included the estate of individual A (the estate). After the third distribution, the Administrators did not anticipate further distributions unless further funding was secured to pursue the claim. Approximately 12 months after the third distribution was made a class action was commenced in the Federal Court of Australia against the trustee for Company A Note Scheme, Company B Limited which you were a part of. A short time later the plaintiffs and Company B Limited entered into a Confidential Deed of Settlement (the Deed). A Notice of Estimated Distribution was received by the estate regarding it’s share of the settlement scheme proceeds. The Deed stated the estate will receive an estimated distribution of $XXX,XXX.XX consisting of: ● $XX,XXX.XX for Notes A; and ● $XX,XXX.XX for Notes B. Paragraph XX of the Deed stated: ‘you will, however, be bound by the terms of the settlement and will not be able to make any claim against Company B Limited in respect of or relating to the subject matter of the Company A Class Action’ Paragraph XX of the Deed stated: ‘if approved the settlement will bind all group members (other than those who have previously opted out of the proceedings). This means that no Group member will be able to take further action against Company B Limited in relation to the subject matter of the proceeding if the settlement is approved by the court’. A short time later the Federal Court of Australia approved the settlement deed.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 100-20 | Income Tax Assessment Act 1997 section 104-25