ATO Interpretative Decision
ATO ID 2003/415
Income Tax
Deferred capital loss or deduction: ceases to exist - relevant (intangible) CGT asset abandoned - new eventFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Where CGT event C2 happens to an intangible CGT asset that is abandoned, can it also be taken that it 'ceases to exist' for the purposes of paragraph 170-275(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. Where CGT event C2 happens to an intangible CGT asset that is abandoned it 'ceases to exist' for the purposes of paragraph 170-275(1)(a) of the ITAA 1997.
Facts
An originating company (as defined in paragraph 170-255(1)(a) of the ITAA 1997) disposed of a relevant (intangible) CGT asset to another entity.
The disposal of the relevant CGT asset resulted in section 170-255 of the ITAA 1997 applying. As a consequence, a capital loss that would have been made by the originating company was disregarded under section 170-270 of the ITAA 1997.
Subsequently, the relevant CGT asset acquired by the other entity was abandoned, resulting in CGT event C2 happening under section 104-25 of the ITAA 1997.
Reasons for Decision
Where a capital loss has been disregarded under section 170-270 of the ITAA 1997 the originating company is taken to have made an equivalent capital loss where a 'new event' happens under section 170-275 of the ITAA 1997.
Paragraph 170-275(1)(a) of the ITAA 1997 provides that a 'new event' happens where the 'relevant CGT asset' acquired by the other entity 'ceases to exist'.
The term 'ceases to exist' is not defined in the ITAA 1997 and must be interpreted having regard to the ordinary meaning of that term in the context of Subdivision 170-D of the ITAA 1997.
Where the relevant (intangible) CGT asset is abandoned such that CGT event C2 of the ITAA 1997 happens it 'ceases to exist' for the purposes of paragraph 170-275(1)(a) of the ITAA 1997.
Note that subsection 170-280(1) of the ITAA 1997 may apply if a further event occurs within 4 years. If subsection 170-280(1) of the ITAA 1997 applies the effect of subsection 170-280(2) of the ITAA 1997 is that the originating company will be taken not to have made the capital loss allowed by section 170-275 of the ITAA 1997.
Note also that the term 'ceases to exist' in paragraph 170-280(3)(a) of the ITAA 1997 is to be interpreted consistently with the interpretation used in applying paragraph 170-275(1)(a) of the ITAA 1997.
Date of decision: 11 April 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
section 104-25
Subdivision 170-D
section 170-255
paragraph 170-255(1)(a)
section 170-270
section 170-275
subsection 170-275(1)
paragraph 170-275(1)(a)
subsection 170-280(1)
subsection 170-280(2)
paragraph 170-280(3)(a)
Keywords
Capital losses
Deferral event
Deferred capital losses
Disregarded capital loss
Losses CoE
Net capital losses
New event
Originating company
Relevant CGT asset
ISSN: 1445-2782