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Edited version of private advice
Authorisation Number: 1012864435050
NOTICE
This edited version has been found to be misleading or incorrect. It does not represent the ATO's view of the relevant law.
This notice must not be taken to imply anything about:
● the binding nature of the private advice issued to the applicant
● the correctness of other edited versions.
Date of advice: 31 August 2015
Ruling
Subject: Cost Base of Shares
Question
Where Company P subscribed for shares (New Shares) in Company S (a wholly owned subsidiary) at a price in excess of their market value at the time of issue (the Premium) and the purpose or expected effect of paying the Premium was to preserve or increase the value of the shares in Company S held by Company P immediately prior to the subscription (Existing Shares), is the Premium included in the cost base of the Existing Shares as a fourth element pursuant to subsections 110-25(5) and 112-30(1A) of the ITAA 1997?
Answer
Yes.
This ruling applies for the following periods:
XX/XX/XXXX to XX/XX/XXXX
The scheme commenced on:
XX/XX/XXXX
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
Background
1. Company S is a wholly owned subsidiary of Company P.
2. Company P incurred capital expenditure by subscribing for shares in Company S at a price in excess of the market value of Company S's shares at the time of issue (the Premium).
3. The Premium was paid with the purpose or the expected effect of increasing or preserving the asset value.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 110-25(5)
Income Tax Assessment Act 1997 Subsection 112-30(1A)
Reasons for decision
Apportionment rules
Subsection 112-30(1A) states that:
“If you incur expenditure and only part of it relates to another element of the *cost base or *reduced cost base of a *CGT asset, that element includes that part of the expenditure that is reasonably attributable to that element.”
As broadly provided by subsection 110-25(5), the fourth element is capital expenditure you incurred for the purpose or the expected effect of which is to increase or preserve the asset's value. Applied to the facts, the purpose or intention of Company P in paying the Premium was to increase or preserve the value attributable to Company S's shares it owned at the time of payment.
Accordingly, the Premium is considered to be ‘reasonably attributable' to the fourth element of the cost base or the reduced cost base of the Existing Shares (through the operation of subsections 110-25(5) and 112-30(1A)).
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