Deferred capital loss or deduction: greater than 50% interest - further event

Does a further event happen for the purposes of subsection 170-280(1) of the Income Tax Assessment Act 1997 (ITAA 1997) where the relevant CGT asset is acquired by more than one entity none of which, considered in isolation, acquires a greater than 50% interest in it?

Yes. Where interests in the relevant CGT asset exceeding 50% in total are acquired by more than one entity, that is included by paragraph 170-280(1)(a) of the ITAA 1997, a further event is taken to have occurred.

The taxpayer, Company P, disposed of a CGT asset to its 100% owned subsidiary , Company S.

The disposal of the CGT asset resulted in CGT event A1 happening for the purposes of subsection 104-10(1) of the ITAA 1997.

The capital proceeds were less than the asset's reduced cost base and the taxpayer made a capital loss in accordance with subsection 104-10(4) of the ITAA 1997.

Company P and Company S were linked at the time of the CGT event for the purposes of subsection 170-260(2) of the ITAA 1997 so that the capital loss was disregarded pursuant to section 170-270 of the ITAA 1997.

Company S subsequently disposed of the CGT asset to two other companies X and Y who each acquired a 50% interest in it.

For the purposes of paragraph 170-275(1)(b) of the ITAA 1997 neither X or Y were, at the time of acquiring their interests in the CGT asset, part of the same linked group as Company P, nor a connected entity or an associate of a connected entity.

Thus, pursuant to section 170-275 of the ITAA 1997, Company P was taken to have made a capital loss equivalent to the capital loss that was previously disregarded pursuant to section 170-270 of the ITAA 1997.

Within 4 years of the disposal by Company S, X disposed of its 50% interest in the CGT asset to Company S, and Y disposed of its 50% interest in the CGT asset to Company Z. At the time of the acquisitions by Company S and Z they were linked for the purposes of subsection 170-260(2) of the ITAA 1997.

Paragraph 170-280(1)(a) of the ITAA 1997 refers to a further event where: '...the relevant CGT asset, or a greater than 50% interest in it, is acquired by an entity that is none of the following: i) a member of the linked group of which the originating company is a member, ii) a connected entity of the originating company, iii) an associate of such a connected entity...'

In applying the singular word 'entity' in paragraph 170-280(1)(a) of the ITAA 1997 it is considered that the word entity should also be construed as 'entities' by regard to paragraph 23(b) of the Acts Interpretation Act 1901 which provides that: 'In any Act, unless the contrary intention appears: (a) ... (b) words in the singular number include the plural...'

As paragraph 170-280(1)(a) of the ITAA 1997 applies then, pursuant to subsection 170-280(2) of the ITAA 1997, Company P is taken not to have made a capital loss at the time of the further event equal to the amount of capital loss that it was taken to have made by subsection 170-275(1) of the ITAA 1997.