Issue
Where greater than 50% of the 'relevant CGT asset' (as defined in paragraph 170-275(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)) ceases to exist, can it also be taken that a 'new event' occurs for the purposes of paragraph 170-275(1)(a) of the ITAA 1997?
Decision
Yes. Where greater than 50% of the relevant CGT asset ceases to exist then paragraph 170-275(1)(a) of the ITAA 1997 applies as a greater than 50% interest in the relevant CGT asset has ceased to exist.
Facts
An 'originating company' (as defined in paragraph 170-255(1)(a) of the ITAA 1997) disposed of a CGT asset to another entity.
The disposal of the CGT asset resulted in section 170-255 of the ITAA 1997 applying. As a consequence, a capital loss that the originating company would otherwise have been entitled to was disregarded under section 170-270 of the ITAA 1997.
Subsequently, greater than 50% of the relevant CGT asset acquired by the other entity ceased to exist.
Reasons for Decision
Where a capital loss has been disregarded under section 170-270 of the ITAA 1997 the originating company is taken to have made an equivalent capital loss where a 'new event' happens under section 170-275 of the ITAA 1997.
Paragraph 170-275(1)(a) of the ITAA 1997 provides that a new event happens where the relevant CGT asset, or a greater than 50% interest in it, 'ceases to exist'.
Where greater than 50% of the relevant CGT asset ceases to exist' then a greater than 50% interest in the relevant CGT asset concurrently also ceases to exist, notwithstanding that 100% of the remaining portion of the CGT asset continues to exist.
Consequently, a new event happens for the purposes of subsection 170-275(1) of the ITAA 1997, and the originating company is taken to have made a capital loss equal to the amount of the capital loss that was disregarded by section 170-270 of the ITAA 1997.
Note: The term 'a greater than 50% interest in it' in paragraph 170-280(3)(a) of the ITAA 1997 is to be interpreted consistently with the interpretation used in applying paragraph 170-275(1)(a) of the ITAA 1997 given in this ATO Interpretative Decision.