Q. I have several thousand Arrium Limited shares. On 1 Sep 17, that company was acquired by GFG Alliance. In the absence of any formal notification from Arrium’s administrators or from its share registrar (Board Room Pty Ltd), and based solely on my reading of the newspapers, my impression is that the shares are now worthless and that sooner or later, probably at the end of the current financial year, I may be able to claim a capital loss on my personal tax return.
If this is so, at what point, and under what circumstances, and by whose authority may I claim their original cost to me as a capital loss? For example, am I deemed notionally to have sold my shares to GFG Alliance for zero cents? Or has some competent authority recognised by the ATO formally declared my shares to be worthless?
A. Generally speaking, in these types of scenarios where a company’s shares are essentially considered to have become worthless, the company will need to have been liquidated, or you will need to sell your shares, in order to make a capital loss.
Alternatively, once the administrator or liquidator makes a declaration in writing that they have reasonable grounds to believe there is no likelihood that shareholders will receive any further distribution for their shares, a shareholder may be able to claim a capital loss. That is, you may claim the tax loss in the Financial year that the administrator or liquidator declares the shares worthless, or to have no value or negligible value. Under these circumstances, if you’re eligible, you may be able to declare the capital loss on your tax return for that year.
If you don’t choose to claim the capital loss in that year, you won’t be eligible to claim the capital loss until the shares are disposed of. Disposal usually occurs when the shares are sold or transferred to another owner.
However, a disposal could also occur when the company shares are essentially cancelled – either as a result of a court order or as part of a voluntary wind up of the company.
If the company shares are not cancelled, you will be unable to trigger the tax loss until you sell your shares. There are a range of companies in the market who will “buy” effectively worthless parcels of shares from you for a fee. The sale of these shares crystallizes the loss for Capital Gains Tax (CGT) purposes.
The benefit of capital losses is that they can be offset against other capital gains now or into the future. This means that the loss, if not used immediately, will carry forward until a future CGT event occurs.
In a future year, if you sell an asset with a capital gain, you will be able to deduct any carried forward capital loss against that future gain, thereby reducing the assessable gain.
Under most circumstances, a carry forward capital loss will mean a reduction in the tax liability arising from a future gain. Remember that this offset happens whether you are likely to pay tax or not, so keep in mind that if you use up this loss while you’re unemployed, it won’t be as valuable as it would be if it offsets a capital gain while you have a regular income and are paying tax at a higher rate.
At the time of writing, the administrators of Arrium, Korda Mentha could not confirm when they would be in a position to advise shareholders that they would be eligible to claim the capital loss. They have advised that information would be posted on www.kordamentha.com in the coming weeks.
Given the particularly complex nature of these situations, it is strongly recommended that you would seek professional taxation advice prior to making any decisions.