Westpoint collapse - tax return deductions and capital losses for 2006-07

Does this information apply to me?

Note: this information is for individual investors with Westpoint promissory notes.
This information applies to you if you are an individual and you:

• held a promissory note issued to you by a company in the Westpoint group when the company was placed in receivership, liquidation or administration

• did not hold the promissory note as a trustee, and held the promissory note as an investment asset, not as part of carrying on a business.

The Westpoint promissory notes

The information obtained by the Tax Office indicates that the promissory notes have the following features:
• the notes are non-transferable and non-negotiable

• the notes were issued for a period exceeding 18 months

• interest was payable monthly in arrears at 12% per annum, and upon expiry, the note holder is to be paid the principal plus 2%.

If you held Westpoint promissory notes with the above features then:

• you may deduct, at item D7 of your 2006-07 tax return, interest you have paid in 2006-07 on money you borrowed to invest in the promissory note.

Loss on promissory note

On 12 June 2007, the liquidator of the following companies within the Westpoint group made a declaration in writing that they have reasonable grounds to believe that all promissory notes issued by the companies will have no value or have only negligible value. The companies affected are:

• Market Street Mezzanine Ltd (in Liquidation)

• Market Street Mezzanine No.2 Pty Ltd (in Liquidation)

• Bayview Heritage Mezzanine Pty Ltd (in Liquidation)

• Bayshore Mezzanine Pty Ltd (in Liquidation).

Effect of a written declaration by a Liquidator

The Liquidator’s declaration on 12 June 2007 means promissory note holders can claim a capital loss in their 2006-07 tax returns.

Example

Peter invested in three promissory notes with Market Street Mezzanine Ltd. Following the declaration by the liquidator on 12 June 2007 that the promissory notes are worthless, Peter chose to claim a capital loss in his 2006-07 tax return.

Peter acquired the promissory notes in January 2005 for $50,000 each. No non-assessable payments were received by Peter in respect of the notes. Therefore, the reduced cost base of Peter’s promissory notes and his capital loss in respect of those notes are $150,000 – that is, 3 x $50,000.

In working out his net capital gain or net capital loss for the 2006-07 year, Peter takes the capital loss of $150,000 from his promissory notes into account.
Holders of promissory notes in other companies in the Westpoint group

You will not be able to claim a capital loss on your promissory notes in your 2006-07 tax return because:
• The administrator or liquidator has not declared in writing that the promissory notes in the company have no value or have negligible value.

• You cannot dispose of your promissory notes as the notes are non transferable and non negotiable
.
• The administrator, liquidator or receiver has not redeemed the notes.

• The notes have not ceased to exist (for example, on dissolution of the company).
However, you may be able to claim a capital loss in future year returns.

What to do/read next

For help applying this information to your own situation, or for promissory notes with different features, you may seek advice from a recognised tax adviser or phone us on 13 28 61.

http://www.ato.gov.au/distributor.asp?doc=/content/content/00105355.htm

Last Modified: Monday, 13 August 2007




	
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