Private ruling: Capital gains tax - cost base - deductions
Published: April 2012
Date scheme commenced: 1 July 2010

Ruling: Q1: Does the payment to your former spouse form part of the cost base of your shares in Company 'A'? | A1: No. | Q2: Are you entitled to claim a deduction for interest paid to your former spouse under orders made in Family Law proceedings? | A2: No. Year ended 30 June 2011 Year ending 30 June 2012 Year ending 30 June 2013 The scheme commenced on 1 July 2010 You and your former spouse are directors of Company 'A'. Company 'A' operates a business. Your former spouse holds all of the issued capital in Company 'A'. You and your former spouse have obtained consent orders pursuant to part 10.4 of the Family Law rules under the Family Law Act 1975 . You have supplied a document which forms part of, and should be read in conjunction with this private ruling: · The consent orders Clause 4.1 of these orders state the following: 4.1 That in consideration of your former spouse paying a Commercial Bill when it matures you shall repay your former spouse 4.1.1 a sum of money within a set period of time; 4.1.2 Interest at the rate of 8%, calculated on the daily balance of the Principal Sum on the basis of a 365 day year. The orders also provide that; · Your former spouse will transfer all of their shares in Company 'A' to you. · You will make monthly payments to your former spouse of principal and interest during the term of the loan. Income Tax Assessment Act 1997 Section 8-1 Income Tax Assessment Act 1997 Section 110-25 Income Tax Assessment Act 1997 Subsection 110-25(2) Income Tax Assessment Act 1997 Subsection 110-25(3) Income Tax Assessment Act 1997 Subsection 110-25(4) Income Tax Assessment Act 1997 Subsection 110-25(5) Income Tax Assessment Act 1997 Subsection 110-25(6) Income Tax Assessment Act 1997 Section 110-35 Section 110-25 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the cost base of a capital gains tax (CGT) asset consists of five elements. The first element of the cost base, being the acquisition costs, is the total of the money paid, or required to be paid, and the market value of the property given, in respect of the acquisition. The second element of the cost base are the incidental costs that the taxpayer incurs in acquiring the asset of which relate to a CGT event that happens in relation to the asset (subsection 110-25(3) of the ITAA 1997). The third element is the non-capital costs of ownership of an asset (subsection 110-25(4) of the ITAA 1997). A non-capital cost of ownership of an asset is any expenditure in connection with the continuing ownership of the asset. These costs include interest on money borrowed to acquire an asset, costs of maintaining, repairing and insuring an asset, rates and land tax, interest on money borrowed to refinance the money borrowed to acquire an asset, and interest on any money borrowed to finance capital expenditure incurred to increase an assets value. The fourth element is capital expenditure incurred to increase the value of the CGT asset (subsection 110-25(5) of the ITAA 1997).




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