For what it's worth
Tony McLean
The Age
20 June 2007
That failed company you invested in may not be a complete loss after all. Tony McLean, the owner of deListed, looks at how to get a tax benefit.
All is not lost when a company fails. The Fincorps and Pasmincos of this world can at least provide an immediate tax benefit through a capital loss.
As the end of the tax year approaches, shareholders should review their portfolio to identify companies that are no longer quoted on the stock exchange. Often these suspended companies are in trouble and many are in external administration.
But administration never augurs well for shareholders. If the company is wound up, the banks and other secured creditors get their money first and shareholders rarely receive anything.
The situation is not much better if the company is resuscitated and is relisted. Shareholdings are often savagely diluted and typically end up being worth only a few dollars.
Disposing of shares in companies that are in administration should be done professionally and it has to be an arm's-length transaction.
Until recently shareholders in companies in administration were locked in to their losses but in 2004 the Tax Office determined that shares could be disposed of, a trust created, and the loss crystallised for tax purposes.
deListed was launched with this in mind. Its website is designed so that shareholders can easily dispose of their worthless shares. deListed provides the necessary documentation to facilitate the crystallisation of losses.
For the present financial year, companies such as Fincorp, Chemeq, Australian Waterwise Solutions, Gleneagle Gold, Atlantic Limited, BMA Gold, White Sands Petroleum, Computronics and Cumminscorp are among a number that can be considered for capital losses.
Taxpayers can also choose to make a capital loss in the financial year when a liquidator or administrator declares there will be no return to shareholders. During 2006-07 declarations have thus far been made for Nonferral Recyclers and Swepdri only.
If the choice to make a capital loss was not made during the financial year that a declaration was made, the securities can still be disposed of and a trust created in subsequent years. In 2006-07 that applies in particular to Pasminco, Sons of Gwalia, ION, Henry Walker Eltin and Stockford.
There are a handful of companies in liquidation where the liquidator still expects there may be a return to shareholders and has therefore not issued a declaration. Stanilite is an example and shareholders in this company are unable to claim their loss.
That failed company you invested in may not be a complete loss after all. Tony McLean, the owner of deListed, looks at how to get a tax benefit.
All is not lost when a company fails. The Fincorps and Pasmincos of this world can at least provide an immediate tax benefit through a capital loss.
As the end of the tax year approaches, shareholders should review their portfolio to identify companies that are no longer quoted on the stock exchange. Often these suspended companies are in trouble and many are in external administration.
But administration never augurs well for shareholders. If the company is wound up, the banks and other secured creditors get their money first and shareholders rarely receive anything.
The situation is not much better if the company is resuscitated and is relisted. Shareholdings are often savagely diluted and typically end up being worth only a few dollars.
Disposing of shares in companies that are in administration should be done professionally and it has to be an arm's-length transaction.
Until recently shareholders in companies in administration were locked in to their losses but in 2004 the Tax Office determined that shares could be disposed of, a trust created, and the loss crystallised for tax purposes.
deListed was launched with this in mind. Its website is designed so that shareholders can easily dispose of their worthless shares. deListed provides the necessary documentation to facilitate the crystallisation of losses.
For the present financial year, companies such as Fincorp, Chemeq, Australian Waterwise Solutions, Gleneagle Gold, Atlantic Limited, BMA Gold, White Sands Petroleum, Computronics and Cumminscorp are among a number that can be considered for capital losses.
Taxpayers can also choose to make a capital loss in the financial year when a liquidator or administrator declares there will be no return to shareholders. During 2006-07 declarations have thus far been made for Nonferral Recyclers and Swepdri only.
If the choice to make a capital loss was not made during the financial year that a declaration was made, the securities can still be disposed of and a trust created in subsequent years. In 2006-07 that applies in particular to Pasminco, Sons of Gwalia, ION, Henry Walker Eltin and Stockford.
There are a handful of companies in liquidation where the liquidator still expects there may be a return to shareholders and has therefore not issued a declaration. Stanilite is an example and shareholders in this company are unable to claim their loss.
Many companies suspended from quotation but not in administration are also suitable candidates for claiming a loss. Often these companies are no longer operating. Their most recent financial statements will reflect losses, cash haemorrhaging and negative net tangible asset backing and attempts to sell or recapitalise the company have foundered.
Countless shareholders have a stake in unlisted public companies. If such companies have ceased operations, or there is no market in the shares, shareholders should obtain advice from their broker before considering disposal to crystallise their loss.
Shareholders should also be aware that some 700 previously listed companies have been deregistered over the past 20 years. Deregistration (as distinct from delisting) is the final rite, the death certificate. The company ceases to exist. Deregistration is a capital gains tax event and a capital loss can thus be claimed. Clutha, Girvan and Jennings Group are examples.
Further details on capital losses can be found on a company by company basis and on a summary webpage (Capital Losses 2006-07) at the corporate graveyard site, http://www.delisted.com.au.
Shareholders often ask what prospects a company has of being recapitalised and requoted on the stock exchange. A company shell can be a valuable asset and there are an increasing number of failed companies where the shell is being restructured.
Typically in these cases the company's existing capital is consolidated and new shares issued which result in a very significant dilution to the original shareholders.
The company Gympie Gold (now Toodyay Resources) is a good example. As part of the restructuring, this company's shares were consolidated, with existing shareholders receiving 1 share for every 15 they held previously. The shares came back on the market at about 2 cents and an average shareholding of, say 25,000 shares acquired at 56 cents each (cost $14,000) had thus become 1667 shares, worth about $34.
Clearly in these circumstances it is preferable to take the tax benefit of the loss immediately, providing it can be utilised then. Remember also that the less-than-marketable parcel of shares still has to be sold before the capital loss can be claimed. Shareholders should do the sums and bounce it around with their accountant.
One other point worth remembering is to choose to claim the capital loss in the year an administrator or liquidator issues a loss declaration. In most cases this will benefit the shareholder even if the loss is not being offset against capital gains that year. In that event, just carry the whole of the capital loss forward. Making this choice avoids the necessity of having to dispose of shares in subsequent years.
