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As you approach the end of the tax year you may be looking back on a year of near misses or a year of investment pain.

Or perhaps, somewhere in between.

In recent years, the approach to June 30th has been a time when you may have had to search pretty hard to find losses in your portfolio.  You’ve possibly just resigned yourself to declaring the profits to the tax man and grudgingly paying the tax.

This tax year could tell a different story for you and many other investors.

I’m sure I don’t need to go through a running commentary of the worst investments of the last twelve months.  So perhaps it’s best if I illustrate it this way:

•    Allco Finance Group Ltd [AFG]

•    ABC Learning Centres Ltd [ABS]

•    Babcock & Brown Ltd [BNB]

•    Commander Communications Ltd [CDR]

•    Great Southern Ltd [GTP]

•    Nylex Ltd [NLX]

•    Timbercorp Ltd [TIM]

Did that send any shivers down your spine?

The startling thing about the list is two years ago most financial advisers would have been happy to suggest any of those stocks for your portfolio.

Now they are gone the only gift this list of losers can give is the potential to claim a capital loss to offset against capital gains.

But not so fast.  Before you get too excited, it’s not quite as simple as waiting for the shares to be delisted and then declaring the write-off.

You need to remember that although a company is no longer trading on the ASX, you are still a shareholder in the company.  So, as a part owner you could still be due a payout – providing there’s anything left once the creditors have been paid what they’re owed.

What you really want to know is “when can you claim the capital loss in your tax return?”

Let me try and answer that for you now.  Well, there’s good news and bad news.

The good news is the tax forms are pretty simple.  You just need to add up all your capital gains for the year, then deduct any losses, and that gives you the “Net capital gain” to enter on your tax return.

Just remember that for individuals you need to complete the “Supplementary” income tax form.

The bad news is the timeframe between a company delisting from the exchange and you being able to claim the tax loss could be years.

As I mentioned above, it’s not as simple as waiting for the shares to be delisted from the exchange.  The point at which you can claim the capital loss depends on the stage of “winding up” the company is in.

Let’s go through some of the details now…

According to www.deListed.com.au, there are three main categories of capital loss companies:

1.    Liquidators’/Administrators’ declarations issued this year

2.    Liquidators’/Administrators’ declarations issued in previous years

3.    Companies suspended from quotation and/or in external administration

DeListed.com.au tells us that three companies – one of which is Allco Finance Group Limited – have issued a ‘loss declaration’ during the 2008/09 financial year.

So, if you’re a shareholder of Allco Finance you’ll have received a notice from the Administrators’ advising you the company has been wound-up and deregistered.

Armed with that notice you can safely file it away and include your Allco Finance shares as a capital loss on your tax return.

The next two categories are not quite so straightforward.  DeListed.com.au tells us that a capital loss letter from the Administrators or Liquidators can only be used in the tax-year the declaration was made.

In other words, if you were unlucky to be a Pasminco shareholder when it went belly-up in 2001 you could only claim the loss in the 2004/05 tax year.  If you didn’t claim it during that year then it’s too late to use this method.

However, there is another way, which I’ll get to in a moment…

Before I do, let’s take a look at the third category, because the method available to you now is similar to the method you can use to claim the loss on companies in the second category, but there’s a catch.  It could cost you a few dollars to do it.

If you don’t want to wait four years like Pasminco shareholders, you can use a service provided by deListed.com.au.  They will ‘buy’ your worthless shares for a nominal value of $1, plus a scaled administration fee.

The benefit of doing this is that you crystallise your loss right away without having to wait for the Administrators and creditors to pick over the carcass of your ‘dead’ investment.

There is a potential downside – although it’s unlikely in most cases – and that’s if the company did relist its shares or was able to pay shareholders any excess funds following the winding up of the company.

DeListed.com.au has an extensive list of over 100 companies that no longer trade and for which they can help you crystallise a capital loss.

However, if you think the 2009/10 financial year is going to be better than the last twelve months and that you’ll be awash with profits, you may want to think about holding capital losses over until next year.

Surely it couldn’t be any worse than this year!

Other articles in this week’s newsletter

On which stocks can you claim a capital loss this financial year?

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How to declare dividends & franking credits on your tax return

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