Extinct but still a tax advantage

Extinct but still a tax advantage

By Tony McLean. Tony McLean is the chief executive of deListed and a former CEO of the Australian Shareholders' Association. | June 10 2009 | The Sydney Morning Herald & The Age (subscribe)

Investors in failed companies should be aware that they can crystallise their capital loss for tax purposes before June 30. This applies to any company, not just those listed, or that have been listed, on the ASX.

The catalogue of failures this year is double that of last year.

Large companies such as ABC Learning and Babcock & Brown, are now in administration. Shareholders in these companies can still dispose of their shares and thus claim their capital loss.

To utilise a capital loss, you must first determine which of several categories your company falls into. Shareholders should not confuse those categories with the status of suspension from quotation or delisting from the ASX.

Firstly, if a Loss Declaration has been issued this year (three companies only: Allco Finance, Asian Pacific and Tamaya Resources), you can choose to make a capital loss without further ado.

Secondly, if a Loss Declaration was issued in a previous year and you did not choose to make the loss in the year it was issued, you can do so now only by disposing of your shares.

Thirdly, if your company has been deregistered (as opposed to being delisted) it has ceased to exist and the capital loss is thus realised. Some 700 relevant companies have been deregistered since 1985, when capital gains tax began.

Shareholders can view a list of these at delisted.com.au/deregistered.aspx by clicking on the link.

The fourth category of companies (see table) is those that are mainly in administration.

Securities in these companies are of little, if any, value and disposal almost invariably makes good economic sense. That can be accomplished easily and quickly online at delisted.com.au for an administrative fee of $81 net or $56 for additional transactions.

Here are the answers to some questions that shareholders in companies that are in administration commonly ask:

My company is in administration. Is there a distribution likely?

To our knowledge there has not been a distribution to shareholders from a listed company in administration, at least not over the past seven years. The only exception occurred when aggrieved shareholders in one special case were ranked with unsecured creditors.

Is there any value in my shares if the company is restructured and able to regain quotation?

The residual value of an average shareholding has been negligible in

such circumstances. Existing shareholdings are usually diluted to represent between 6 per cent and 8 per cent of the restructured company.

The company Western Metals Limited (WMT) is a good example. This company's shares were consolidated as part of a restructuring, with existing shareholders receiving one share for every 100 they held previously. The shares came back on the market at about 2.3 cents and an "average" shareholding of, say, 50,000 shares acquired at 28 cents each (cost $14,000) had thus become 500 shares, worth about $15. Shareholders who retained their holding were still faced with having to sell an unmarketable parcel to crystallise their capital loss.

An administrator tells me that my shares cannot be transferred.

While s437F of the Corporations Act prohibits the transfer of shares when the register is "frozen", the tax office has determined that in certain circumstances the capital loss can be crystallised. The securities are transferred into a trust pending subsequent registration. It is important the transaction is at "arm's length" and the documentation completed professionally.

My shares have been converted to Issuer Sponsored. How can I dispose of them without an SRN?

This is typical of companies in administration. All you need is the previous HIN or SRN.

How do I sell my shares if I am in a wrap platform?

Your financial adviser or platform provider can assist and deListed also provides help at its website.

If I sell my worthless shares can I still receive distributions if I am ranked as an unsecured creditor or become a beneficiary of litigation?

Yes. Administrators have confirmed that your rights as an aggrieved shareholder are unaffected.

All investors should seek independent professional advice before making any decision regarding their securities. A comprehensive description of the capital loss status for income year 2008/09, together with a complete list of appropriate companies, can be viewed at delisted.com.au/capitallosses0809.aspx.

Dispose and benefit

ABC Learning Centres

Agenix

Agri Energy

Allco HIT

Aluminex Resources

Apollo Life Sciences

Australis Mining Corporation

Babcock and Brown

Baraka Petroleum

Commander Communications

Compass Resources