Key Post Getting CGT loss relief on worthless shares

Originally posted by usinvestor

Earlier this year I sold some shares with a profit of nearly 6000euro. I also have shares in a US company which has filed for Chapter 11 bankruptcy. I have a contract showing the purchase price but no other paperwork since I have not sold these shares. It would seem like a good idea to offset this loss against my profit to reduce CGT. When filling in my PAYE Tax Return what evidence do I need to provide to the tax office regarding my bankrupt ( and I assume worthless ) shares?

Re: Tax Return - share question

There is a special Revenue concession which means that you don't have to sell the shares to crystallise the loss for CGT purposes. Just contact your local tax office with the details and they should agree to treat the shares as if the were disposed by you at their current value.

If the shares do rise in value at some time in the future, their value at the date of this "notional disposal" will be used as the base cost in any resulting CGT computation.

Tommy
www.mcgibney.com

CGT

Great. Will try that.
Thanks Tommy.

CGT Losses

Hi Tommy,

What criteria does the shareholding have to meet to qualify for the concession from the Revenue - I assume there's more to it than simply "it's fallen a lot" ?

Thanks.

Re: CGT Losses

The concession is operated under S538(2) of the 1997 Taxes Consolidation Acts.

I am not aware of any links to any Revenue information on this - my information sources are the legislation itself and the standard tax textbooks (which of course are far more comprehensive than any Revenue guide).

The sole criterion, according to the Act, appears to be that the Inspector of Taxes must be satisfied that the "value of an asset has become negligible".

Presumably, "negligible" means relative to the acquisition cost.

Tommy
www.mcgibney.com

negligible / share options

Hi Tommy,

I assume negligible means a lot worse than a $20 share option now trading as a $1 share.

Regarding share which were originally options, but on which the income tax due as BIK was deferred for 7 years, are these shares eligible for the tax concession of recognising the CGT loss?

Re: negligible / share options

Hi cm,

The definition of what is or not "negligible" will probably depend on a particular tax inspector's judgement - which may be influenced by the facts and circumstances of a particular case as presented to them by the taxpayer concerned or their advisor.

I would reckon the concession should apply to shares bought via option schemes, although not having researched this particular point, I cannot be certain of this.

Tommy
www.mcgibney.com

Re: negligible / share options

You must elect to have the shares treated as nil value within the tax year! You cannot do it retrospectively on your tax return.

So, if our original questioner made a capital gain in 2001, he must write to the tax inspector before 31 December to elect to have the other shares declared as nil value.

Having said that, the simplest thing to do would be to sell the shares as someone else suggested.

Brendan

Re: negligible / share options

You must elect to have the shares treated as nil value within the tax year! You cannot do it retrospectively on your tax return.

Click to expand...

This is theoretically correct but in practice the Revenue will allow loss relief in such situations if the claim is made within 12 months of the end of the tax year to which the claim relates

Tommy
www.mcgibney.com

Re: Key Post: Getting CGT loss relief on unsold shares KEY POST

I had shares in company that crashed. They paid me a wind up payment, all I did was deduct my loss from my gains. I was also understood a loss could be carried over from the previous year.

This is from [broken link removed] 2003

Negligible Value
Section 538 TCA 1997 provides for loss relief where the owner of an
asset satisfies the inspector that its value has become negligible. The loss
is calculated as if the asset was sold for an amount equal to the amount
so valued.

The word ‘negligible’ is not defined for the purpose of the Tax Acts and
therefore takes its normal meaning, i.e., not worth considering;
insignificant. The concept of negligible value is not comparative in
nature. A dramatic fall in the value of shares, e.g., due to the volatile nature of the sector in which it operates, would not give rise to a negligible
value claim where the company continues to operate and its shares

This is another Revenue document, but I am not sure what it is.

[broken link removed]

9.2 On a strict interpretation a loss arising on a deemed disposal under s 538(2) is allowable only in the year of claim. However, in practice, a claim made within twelve months of the end of the year of assessment or accounting period for which relief is sought will be admitted, provided that the asset was of negligible value in the year of assessment or account period concerned.

9.3 Where, resulting from the provisions of the Anglo Irish Bank Corporation Act 2009, shares in Anglo Irish Bank are transferred to the Minister for Finance, there will be a disposal to which Section 538 TCA 1997 applies.

Where a claim is made, the shares will be treated as of negligible value and a loss for 2009 may be calculated. If it later transpires that compensation is received, under the terms of the Act, in respect of the transferred shares, this will be treated, under Section 535 TCA 1997, as consideration for a disposal at time of receipt. In such a case, if a negligible value claim was made earlier, there will be no base cost and any chargeable gain arising shall be computed accordingly. If a negligible value claim was not made, the costs of acquisition of the shares transferred will be the base cost to be set against any compensation proceeds. In this instance, no separate claim need be made. If the loss is being claimed for 2009, it may be set against other gains, as appropriate, in arriving at Capital Gains Tax due on 15 December In making any Capital Gains Tax return or in completing the CGT panel of an Income Tax return, the loss may be used without separate comment.

Can I make such a claim online, or do I have to get out my quill?

You just include it in the relevant income tax return (as a capital loss arising during that year).

For example, someone owning Anglo shares that they'd previously purchased for €10,000 would include a capital loss of €10,000 in their 2009 income tax return.