Taxation Determination
TD 94/90
Income tax: capital gains: when should an increase be made under subsection 160ZP(14) of the Income Tax Assessment Act 1936 to the cost base, indexed cost base or reduced cost base of shares or debt held in a group company into which a net capital loss is transferred?
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FOI status:
may be releasedFOI number: I 1217964| This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20). |
1. The increase to the cost base, indexed cost base or reduced cost base of the shares or debt is calculated when the disposal of the shares or debt occurs, but is made with effect from when the loss is transferred.
2. The purpose of the increase to the cost base, indexed cost base or reduced cost base of shares or debt held in a group company into which a net capital loss is transferred is to ensure that, on a disposal of shares or debt in the company, there is no capital gain attributable to the tax benefit derived from the transferred loss to the extent that the benefit is reflected in the market value at the time of disposal: explanatory memorandum accompanying Taxation Laws Amendment Bill (No 2) 1994.
3. Subsection 160ZP(15) provides that the amount of the increase cannot exceed the increase in the market value of the shares or debt that results from the transfer of the loss. Because the increase to the cost base, indexed cost base or reduced cost base is limited by the amount of the tax benefit which, at the time of disposal, is reflected in the market value of the shares or debt, it is only then that the amount of the increase can be determined. However, the amount of the increase which is determined at that time is deemed to have occurred, for indexation purposes, when the loss is transferred.
4. The interpretation in this Taxation Determination is consistent with the policy underlying subsection 160ZP(14) as set out in the Assistant Treasurer's press release of 12 January 1994 announcing the amendment.
Example
On 1 March 1994 Company A transfers, for no consideration, a $100,000 net capital loss to off-set a $100,000 capital gain derived by Company B, a sister company within a wholly-owned company group. This increases the market value of the shares held in Company B by $33,000 (the CGT otherwise payable on the capital gain). On 1 June 1994 Company B distributes a dividend of $11,000 to its holding company, representing one third of the tax saving from the transferred loss. No other dividends are paid. On 1 July 1995, all the shares in Company B are disposed of by the holding company.Subsection 160ZP(14), in conjunction with subsection 160ZP(15), applies to include an amount of $22,000, indexed from 1 March 1994, in the indexed cost base of the shares.
Commissioner of Taxation
24 November 1994
Previously issued as Draft TD 94/D96.
References
ATO references:
NO NAT 94/4369-0; NAT 94/6255-4; (CGDET106)
Subject References:
cost base
debt
group companies
net capital losses
shares
transfer of losses
Legislative References:
ITAA 160ZP(14);
ITAA 160ZP(15)
| Date: | Version: | Change: | |
| You are here | 24 November 1994 | Original ruling | |
| 4 July 2001 | Withdrawn |