deListed goes for broke on CGT losses

Bina Brown

The Australian

19 May 2004

Help's at hand for crystallising tax losses.

IT'S one thing to lose your money on a failed company -- but it's another to have to wait years to claim a tax loss.

At present, only a liquidator can declare shares in a company to be worthless for capital gains tax purposes.

A long-awaited change to legislation -- allowing any insolvency practitioner to declare shares and other securities in a company to be worthless for capital gains tax purposes -- is expected to be debated in Parliament within months.

But it is unlikely to be ready by the end of the financial year.

In the meantime, the privately run “company graveyard'' website, DeListed (www.delisted.com.au), has extended a service in which it acquires parcels of worthless shares to assist with the crystallisation of shareholder losses in failed companies. The service was trialled earlier this year on Pasminco.

DeListed founder Tony McLean welcomes the impending legislative change to simplify the capital gains tax rules, but says shareholders want a solution before the end of the financial year.

“This legislative change is one of the few positive developments for shareholders, particularly for shareholders of failed companies, to come out of the woodwork for some time,'' McLean says.

“As the end of the financial year draws near, the issue for shareholders is: when are the administrators of failed companies going to issue a statement.''

A spokesman for Revenue Minister Helen Coonan says the legislative change, announced as part of the federal budget, is expected to be debated before the July parliamentary recess.

A ruling by the Australian Taxation Office makes it possible for a shareholder of a company in administration to create a trust over the shares by declaration -- and in doing so trigger the necessary capital gains tax event.

DeListed has set up a unique structure in which a company established by McLean will acquire parcels of worthless shares from shareholders.

By agreeing to hold them in trust, he is able to trigger the relevant capital gains tax event which shareholders need to crystallise a tax loss.

McLean says he tested the structure earlier this year on Pasminco, and decided to extend the service to 52 other failed companies -- including Antaeus Energy, Austwide group, Gympie Gold, Jacobsen Entertainment, Reynolds Wines and Tassal -- after requests from shareholders.

Of the 60,000 Pasminco shareholders, an estimated 30,000 to 40,000 small holders can take advantage of the loss and potentially claim hundreds of millions in losses.

So far only about 100 shareholders have approached DeListed to help crystallise the loss, which can be offset against any capital gain.