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Ruling
Subject: Assessability of underwriting fee
Question 1
Does a fee received for underwriting a share issue on behalf of a company form part of your assessable income?
Answer
Yes
Question 2
Does a fee received for underwriting a share issue on behalf of a company constitute a reduction in the cost base of the shares you acquired when the issue was only partly subscribed?
Answer
No
This ruling applies for the following periods:
Year ended 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
You are employed as the managing director of a company.
You agreed, with others, to underwrite a share issue by the company which sought to raise additional capital. The issue was undersubscribed and your share of the shortfall amount was duly paid to the company.
Subsequent to the receipt by the company of the shortfall amount, you received an underwriting fee from the company. The other underwriters also received fees from the company.
You do not carry on a business of underwriting share issues and became involved in this instance only because it is a legal requirement that a public company must have an underwriter in order for a share issue to take place.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 110-45(3)
Reasons for decision
Question 1
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer's assessable income includes income according to ordinary concepts.
In your case, the fee you received from the company for the provision of underwriting services is a fee for services provided by you and is assessable as ordinary income under section 6-5 of the ITAA 1997.
Question 2
The fee received for acting as an underwriter to the company is considered to be income for services rendered by you. As such, the fee is distinct from the purchase of shares by you and would have been payable to you regardless of whether there had been a shortfall or not.
The fee received therefore cannot form a reduction in the cost base of the shares acquired by you and cannot constitute a recoupment of the cost base of the shares acquired as provided in section 110-45(3) of the ITAA 1997.