Are “wash sales”, a capital idea? The ATO doesn’t think so.
What you need to be aware of.
Let us share with you an old, but still compelling, short story.
Back in 1998, a taxpayer (Mr. X) thought it was a capital idea to transfer a parcel of shares, which had significantly dropped in value, from one family trust to another trust both of which he controlled. By doing so, the idea was that the capital loss that was made on those shares by the first trust could be offset against capital gains that had also been made by the same trust on other share sales.
Unfortunately for Mr. X, the ATO thought otherwise and disallowed the loss using the general anti avoidance rules. Problem was, the loss shares were, in effect, still within Mr. X’s economic group.
Not to be out-done, Mr. X took his case through the courts…and lost!
Some years later, the ATO issued a Ruling warning that it was on the look-out for arrangements of this kind. It sets out an inexhaustive list of the kinds of arrangements it will investigate to cancel a tax benefit from a loss where there is no significant change in an economic exposure to, or interest in, an asset that is still controlled by the same group.
So, simply moving an asset from one related party (individual, company, trust or superannuation fund) to another related party to generate a loss will be within the scope of the anti-avoidance rule.
Other arrangements, for example, where that interest in an asset is sold to an unrelated party but later reinstated by re-acquisition, are also open to review.
If, for example, a 1000 shares in a listed company are sold on market for a loss and the same number of shares are purchased after yearend the anti-avoidance rules could apply