As a result of the class action against GIO, its board and its advisers, shareholders of GIO who were on the register during 1998 received compensation payments in 2004.
The Australian Taxation Office (ATO) has issued a guide following upon its opinion that taxpayers must amend their year 2000 calculations. The ATO view is that the compensation is additional proceeds arising from the scheme of arrangement of 30 December 1999 which, in the majority of cases, occurred without any shareholder action.
There is a strong contrary argument that the compensation is for the disposal of the right to sue.......which would mean that for capital gains purposes the disposal occurs in the 2004 tax year.
However, the ATO disagree with that view.
Taxpayers, who have already returned the 2000 disposal as a profit or loss, will need to consider their options - either reject the ATO opinion and incur costs and possibly higher penalties, or accept the ATO opinion and follow the ATO process.
If you had a net capital loss carried forward, which is still a loss after the compensation is included, it will be necessary to adjust the carried forward amount (and then consider whether a subsequent year's capital gain might have to be adjusted).
Special arrangements are necessary to avoid the penalties and interest, so alert your tax adviser to your circumstances. But be prepared, because there can be a flow-on effect for several years and that could be costly for your adviser to solve.
Postscript - Sanity Prevails
A simple alternative is now available for those taxpayers who received compensation from GIO.
As reported above, the ATO view was that the 2000 year's return should be amended.
We warned that this could be costly.
Fortunately the ATO have realised the practical difficulties with their (debatable) view of the situation. A new option will now allow the compensation to be a capital gain in 2004 year. This alternative approach is outlined in the ATO Practice Statement PS LA 2004/5 (GA) issued 18 October 2004.
No interest will be imposed if the request for amendment is made before 30 June 2005.
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