ATO Interpretative Decision

ATO ID 2002/771 (Withdrawn)

Capital Gains Tax

• This ATO ID is withdrawn as it does not contain an interpretive decision.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

What is the cost base of the shares under section 110-25 of the Income Tax Assessment Act 1997 (ITAA 1997) in the Danish company, Novozymes A/S, received by an Australian resident taxpayer following the demerger of another Danish company, Novo Nordisk A/S?

Decision

The cost base of the shares received in Novozymes A/S, following the demerger, will be $nil under section 110-25 of the ITAA 1997.

Facts

The taxpayer owns shares in Novo Nordisk A/S. On 13 November 2000, Novo Nordisk A/S demerged by transferring some of its business activities to a new Danish public company, Novozymes A/S. There were no amounts debited to the share capital accounts of Novo Nordisk A/S in respect of the demerger.

The taxpayer received one share in Novozymes A/S for each share owned in Novo Nordisk A/S. The Novozymes A/S share had similar rights, proportion of issued capital, par value in Novozymes A/S as the equivalent share in Novo Nordisk A/S.

There was no change to the taxpayer's Novo Nordisk A/S shares as a result of the demerger.

The taxpayer incurred no expenses in relation to the allotted Novozymes A/S shares.

Reasons for Decision

The cost base of a CGT asset under section 110-25 of the ITAA 1997 consists of 5 elements as follows:

1.

Acquisition costs - the total of any money the taxpayer paid or is required to pay in respect of acquiring the asset and/or any property that the taxpayer gave or is required to give in respect of acquiring it;

2.

Incidental costs - cover both incidental costs to acquire the CGT asset and incidental costs that relate to the CGT event (eg disposal of the asset);

3.

Non-capital costs of ownership - for assets acquired after 20 August 1991. These include , but are not limited to, interest on money borrowed to acquire the asset or to refinance such a borrowing , interest on money borrowed to refinance capital improvements to the asset, repairs and maintenance, insurance premiums, rates and land taxes;

4.

Capital expenditure to increase value - the costs are included provided it is reflected in the state or nature of the asset at the time of the CGT event;

5.

Capital expenditure to establish or defend title to or a right over an asset.

The cost base of the Novozymes A/S shares will be the total of the 5 elements above. As there was no money paid or required to be paid for the shares, the first element will be $nil. If there is no other expenditure incurred in acquiring these shares, the cost base of the shares will be $nil.

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1997
   section 110-25
   subsection 112-20(1)
   subsection 112-20(3)

Related ATO Interpretative Decisions
ATO ID 2002/772

Keywords
Acquisition of shares
Capital Gains Tax
CGT cost base
CGT cost base modification market value substitution rule
Company restructuring
Non resident companies
Public companies
Shares
Shareholders

Business Line:  Centres of Expertise Capital Gains Tax

Date of publication:  31 July 2002

ISSN: 1445-2782