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Taxation Determination

TD 92/178

Income tax: is that part of the total cost incurred by Company A in acquiring shares in a third unrelated company from Company B under an underwriting agreement, and claimed as interest by Company A, deductible under section 8-1 of the Income Tax Assessment Act 1997 if:
(a) company A treated the shares acquired as being on capital account; and
(b) the underwriting agreement provided that the total acquisition cost was to include an amount expressed to be interest in relation to the period during which the agreement was current?

  • Please note that the PDF version is the authorised consolidated version of this ruling and amending notices.
    This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

FOI status:

may be releasedFOI number: I 1213530

This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953, is a public ruling for the purposes of that Part . Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, the Determination applies to transactions entered into both before and after its date of issue.

[Note: This is a consolidated version of this document. Refer to the Tax Office Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.]

Section 8-1 of the Income Tax Assessment Act 1997, to which this Ruling refers, expresses the same idea as subsection 51(1) of the Income Tax Assessment Act 1936.

1. No. The essential character of the outgoing under consideration is capital, or of a capital nature, as it formed part of a once only, non-recurrent, payment for the acquisition of shares by Company A which held them as non-trading, non-revenue, assets (Sun Newspapers Ltd v FC of T (1938) 61 CLR 337).

2. Also, the outgoing cannot be regarded as interest as there was no loan or debt in existence between Company A and Company B during the currency of the underwriting agreement. Interest can only be ascertained by reference to an obligation to pay a sum of principal moneys, and without that relationship an outgoing cannot be treated as interest (Reference Re Saskatchewan Farm Security Act [1947] SCR 394 at 411-412; Federal Wharf Co. Ltd v DFC of T (1930) 44 CLR 24 at 27-28).

Note: The Addendum to this Determination that issued on 2 September 1998 amends this Determination in relation to the 1997-98 or later income years.

Commissioner of Taxation
29/10/92

Previously issued as Draft TD 92/D139

References

ATO references:
NO NOR: J36/354/4

ISSN 1038 - 8982

Subject References:
deductibility of an amount paid under an underwriting agreement;
interest expense

Legislative References:
ITAA 51(1)
ITAA 1997 8-1

Case References:
Sun Newspapers Ltd v FC of T
(1938) 61 CLR 337


Reference Re Saskatchewan Farm Security Act
[1947] SCR 394

Federal Wharf Co Ltd v DFC of T
(1930) 44 CLR 24

TD 92/178 history
  Date: Version: Change:
  29 October 1992 Original ruling  
You are here 2 September 1998 Consolidated ruling Addendum

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