ATO Interpretative Decision

ATO ID 2009/1

Income Tax

Capital Gains Tax: first element of cost base of shares - company formation expenses
FOI status: may be released

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Is an appropriate proportion of the costs incurred by the proposed initial shareholders (the shareholders) of a company in formation in respect of establishing the company, included in the first element of the cost base of each of the shareholder's initial shares under paragraph 110-25(2)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No, an appropriate portion of the costs of establishing the company are not included in the first element of the cost base of each of the initial shareholder's shares.

Facts

The shareholders of a company in formation paid another entity an amount to assist in the company registration process including preparing the registration application and consents.

The shareholders paid a separate amount to the company once it was formed for each share they agreed to take up.

Reasons for Decision

Paragraph 110-25(2)(a) of the ITAA 1997 includes in the first element of the cost base of a CGT asset money paid, or required to be paid, in respect of acquiring it.

In the present circumstances the expenditure was for the services provided to assist in establishing the company; it was not in respect of the acquisition of the shareholder's initial shares.

Therefore, no part of the payment is included in the first element of the cost base of any of the shares acquired by the initial shareholders.

The first element of the cost base of each share owned by an initial shareholder is the separate amount paid to the company for each share.

Note: no part of the amount paid to assist in the company registration process is included in any other element of the cost base of the shares acquired by the initial shareholders.

Date of decision: 18 July 2008

Year of income: Year ended 30 June 2009

Legislative References:
Income Tax Assessment Act 1997
paragraph 110-25(2)(a)

Keywords
Capital gains tax
CGT cost base
Share capital

Siebel/TDMS Reference Number: 5804179; 1-5JOKXIV; 1-BJGDYNA

Business Line: Private Groups and High Wealth Individuals

Date of publication: 9 January 2009
Date reviewed: 1 June 2017

ISSN: 1445-2782

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