ATO Interpretative Decision
ATO ID 2004/500 (Withdrawn)
Income Tax
Consolidation: capital gains - tax cost setting amount - cost base and reduced cost base - incidental costsFOI status: may be released
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This ATO ID is withdrawn from the database as the position stated in this ATO ID does not apply from 5 June 2008. Despite its withdrawal, the position contained in this ATO ID continues to apply to arrangements entered into prior to 5 June 2008This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 6 June 2008
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can incidental costs within paragraph 110-35(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) be included in the cost base and reduced cost base of membership interests in a subsidiary member of a consolidated group that are worked out when the subsidiary leaves the group?
Decision
Yes. Incidental costs as defined in paragraph 110-35(1)(b) of the ITAA 1997, paid to an entity that is not a member of the consolidated group, can be included in the cost base and reduced cost base of membership interests in a leaving subsidiary, provided the costs have been incurred in relation to the CGT event that happens on the subsidiary's leaving the group.
Facts
HeadCo owns all the membership interests in SubCoX and SubCoY. All three entities form a consolidated group effective from 1 July 2002.
HeadCo disposed of the membership interests in SubCoX to an entity outside the group and, as a result, SubCoX leaves the group on 4 July 2004.
HeadCo engaged a legal adviser (who was not a member of the group) and incurred legal fees of $80,000 in relation to the disposal of the membership interests in SubCoX.
Reasons for Decision
The second element of the cost base and reduced cost base of a CGT asset includes the incidental costs incurred that relate to a CGT event that happens in relation to the asset, (subsection 110-25(3); paragraph 110-35(1)(b) and subsection 110-55(2) of the ITAA 1997). Incidental costs are defined in section 110-35 and include legal fees, the cost of transfer and stamp duty.
On the leaving of a subsidiary member from a consolidated group, the tax cost setting amount of membership interests in the subsidiary (as determined under sections 711-15 or 711-55 of the ITAA 1997 for the purposes of section 701-60 and subsection 701-15(3) of the ITAA 1997) becomes the first element of the cost base and reduced cost base of those interests, (subsection 701-55(5) of the ITAA 1997).
The fact that the first element of cost base and reduced cost base of membership interests in a leaving entity is established under the tax cost setting process described in the previous paragraph does not preclude an amount being added to cost base and reduced cost base in respect of relevant second element expenditure.
The disposal of the membership interests in SubCoX causes CGT event A1 to happen in respect of those interests and the legal fees were incurred in relation to that event. Therefore, in addition to the tax cost setting amount for the membership interests in SubCoX which constitutes the first element of their cost base and reduced cost base, $80,000 can be included as an amount in the second element of their cost base and reduced cost base. It would not matter whether the legal fees were incurred before or after the subsidiary leaves the group, provided they related to the event.
Date of decision: 7 June 2004Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
subsection 110-25(3)
section 110-35
paragraph 110-35(1)(b)
subsection 110-55(2)
subsection 701-15(3)
subsection 701-55(5)
section 701-60
section 711-15
section 711-55
ATO ID 2004/238
Keywords
Capital gains tax
CGT cost base
CGT reduced cost base
Consolidation
Consolidation - capital gains tax
Consolidation - exiting
Cost of membership interests
Leaving entity
Leaving time
Membership interest in an entity
ISSN: 1445-2782
| Date: | Version: | |
| 7 June 2004 | Original statement | |
| You are here → | 6 June 2008 | Archived |