Put losses to work
June 14, 2006

By Tony McLean
Money - SMH and The Age

It's time to review holdings in failed companies.

Shareholders with capital gains tax liabilities should review their portfolio to check whether they can offset them against any capital losses before June 30.
However, capital losses do not have to be used this year and can be carried forward indefinitely.
Shareholders in companies that have gone bust need to determine whether the companies fall into one of the three categories. This will determine how to dispose of them.
First, there are those companies where an administrator has declared this financial year that there is no likelihood of a return to shareholders. This means shareholders can claim the losses without further ado. Such a declaration has been issued during 2005-06 for Henry Walker Eltin, Federation Group, Alamain Investments and Farnell & Thomas. Then there are deregistered companies - they are not only delisted from the ASX but also struck off the Australian Securities and Investments Commission's companies register.
Such companies have ceased to exist, their shares are of no value and a capital loss can, therefore, be claimed. There are about 700 such companies.
Finally, there are companies that are either suspended from quotation on the ASX or delisted from the ASX, whether or not in administration. The accompanying list has 82 such companies.
Shares in these companies are of little value, if any, and investors should consider disposing of them to crystallise a loss this year.
Disposing of shares in companies that are in administration should be done professionally and it has to be an "arms length" transaction otherwise it could attract the attention of the Tax Office.
deListed was launched with this in mind. The website is designed so that shareholders can easily dispose of their worthless shares and crystallise a loss. There is an administration fee of $76 to do so, less $1 for each parcel of securities.
A significant number of companies, though listed, are not quoted on the ASX. The shares may have value or potential value and are probably worth holding on to. At least do not sell them for a nominal amount until you have talked to your broker.
Shareholders often ask: "What if my company is recapitalised and regains quotation?"
That is happening with increasing frequency. Company shells can fetch up to $750,000 and there is a demand for "clean shells" with an existing shareholder base.
But shareholders need to do their sums.
Western Metals and Gympie Gold (now Toodyay Resources) are two recent and prominent examples.
Both companies went under and have since been recapitalised and their shares are back on the market.
However, in each case, shareholdings have been substantially diluted. An "average holding" originally costing $10,000 is now worth between $15 and $25. Clearly, in these circumstances, it is better for shareholders to claim the capital loss when it can be used.
One other point to remember is that if you have not disposed of your shares, make sure you claim the capital loss in the year an administrator issues the loss declaration.
That is because the shareholder has to choose to claim the capital loss in the tax return, even if the loss is not being offset against capital gains this year. In that case, the whole of the capital loss can be carried forward.
Shareholders in Pasminco, ION and Sons of Gwalia, for example, who did not choose to claim their loss last year, need to dispose of their holdings by June 30, to claim their capital loss this year.
If you are in doubt about the value of your shares and the tax implications, check with delisted.com.au and also consult your broker and accountant.

Tony McLean is the founder of deListed and a former chief executive of the Australian Shareholders Association.