ATO Interpretative Decision
ATO ID 2003/865
Income Tax
Capital gains tax: capital loss on transfer of shares in a company in administrationFOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Does CGT event A1 in section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) happen when a taxpayer purports to transfer shares in a company in administration, without obtaining court approval for the transfer?
Decision
No. CGT event A1 in section 104-10 of the ITAA 1997 does not happen because the transfer is rendered void by section 437F of the Corporations Act 2001.
Facts
The taxpayer acquired shares in a company after September 1985.
Subsequently, the company was placed in administration.
After that time, the shareholder executed a transfer of the shares to an intending buyer, who forwarded the transfer to the administrator for registration. Court approval was not obtained for the transfer.
The administrator refused to register the transfer.
Reasons for Decision
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.
In Taxation Ruling TR 94/29 in the context of the sale of land, the Commissioner has taken the view that an unregistered transfer can effect a change of ownership of land for the purposes of CGT event A1.
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.
The purpose of these rules is to prevent the transfer of a share to an impecunious entity to avoid liabilities that may arise in respect of that share - see Keay, A 1999, The law of company liquidation, 4th ed, LBC, Sydney, pp. 239-40.
As court approval has not been obtained for the transfer of the taxpayer's shares, the transfer is specifically negated by section 437F of the Corporations Act 2001. This is not a situation to which the principles in TR 94/29 will apply.
Accordingly, CGT event A1 has not happened in respect of the taxpayer's shares.
Date of decision: 25 August 2003Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
section 104-10
section 437F
subsection 468(1)
subsection 493(2)
Related Public Rulings (including Determinations)
Taxation Ruling TR 94/29
Other References:
Keay, A 1999, The law of company liquidation, 4th ed, LBC, Sydney, pp. 239-40.
Keywords
CGT event A1- disposal of a CGT asset
Disposal of shares
Shares
Voluntary administration
ISSN: 1445-2782