Taxation Determination

TD 2022/14

If a non-contingent liability to pay a specified amount is included in the cost base of your CGT asset under either subsection 110-25(2) or section 112-35 of the Income Tax Assessment Act 1997 and you deduct or can deduct that amount, does subsection 110-45(2) of that Act apply?

• Please note that the PDF version is the authorised version of this ruling.
  There is a Compendium for this document: TD 2022/14EC .

Ruling

1. Yes, subsection 110-45(2) of the Income Tax Assessment Act 1997 applies such that the amount does not form part of the cost base of your CGT asset.^[1]

2. All legislative references in this Determination are to the Income Tax Assessment Act 1997.

Date of effect

3. This Determination applies both before and after its date of issue. However, the Determination will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 75 to 76 of Taxation Ruling TR 2006/10 Public Rulings).

Commissioner of Taxation
5 October 2022

Appendix - Explanation

4. In principle, an item of expenditure should either be deductible for income tax purposes or included in the cost base of an underlying asset for CGT purposes, but not both.^[2]

5. Consistently with that principle, for CGT assets acquired after 7:30 pm ACST on 13 May 1997, where you claim a deduction for expenditure, subsection 110-45(2) applies to exclude the expenditure from the CGT asset's cost base:

Expenditure (except expenditure excluded by subsection (1B)) does not form part of the cost base to the extent that you have deducted or can deduct it for an income year, except so far as:

(a)

the deduction has been reversed by an amount being included in your assessable income for an income year by a provision of this Act (outside this Part and Part 3-3 and Division 243); or

Note: Division 20 contains some of the provisions that reverse deductions. Section 20-5 lists some others.

(ab)

the deduction is under Division 243; or

(b)

the deduction would have been so reversed apart from a provision listed in the table (relief from including a balancing change in your assessable income).

6. The context in which the word 'expenditure' operates in subsection 110-45(2) is one of deductibility. A non-contingent liability to pay a specified amount^[3] is a presently-existing liability to expenditure, even if the liability is yet to be discharged. If the non-contingent liability can be included in cost base under subsection 110-25(2) or section 112-35, and you have deducted or can deduct an amount of expenditure which it represents, then subsection 110-45(2) operates such that the amount included in cost base at the time of acquisition of the asset will not form part of the cost base, provided it does not fall under one of the listed exceptions.

7. Consequently, subsection 110-45(2) can apply to reduce the amount included in the cost base by subsection 110-25(2) or by section 112-35.

© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

Previously released in draft form as TD 2019/D11

References

ATO references:
NO 1-JPO8R00

Related Rulings/Determinations:

TR 2006/10

Business Line:  PGI

Legislative References:
ITAA 1997 110-25(2)
ITAA 1997 110-45(2)
ITAA 1997 112-35

Other References:
Explanatory Memorandum to the Taxation Laws Amendment Bill (No 2) 1998