Court Decisions
Cost base of shares
12.12.2008
The Federal Court (Middleton J) has held that, although a capital contribution made by the taxpayer to a company increased the valued of the taxpayer’s shares in the company, it was not reflected in the state or nature of the shares at the time of their disposal by the taxpayer and, accordingly, did not form part of the cost base of the shares under former sec 160ZH(3)(c) ITAA 1936 (National Mutual Life Association of Australia Ltd v FCT [2008] FCA 1871).
The decision in this case accords with the Commissioner’s views set out in TD 2004/2.
Amendment
It should be noted that the terms of this element of the cost base of a CGT asset were redefined by the Taxation Laws Amendment (2006 Measures No 1) Act 2006 (with effect in relation to CGT events happening on or after 1 July 2005) to include capital expenditure incurred the purpose or the expected effect of which is to increase or preserve the asset’s value or that relates to installing or moving the asset (sec 110-25(5) ITAA 1997). This would mean that the amount in question in the National Mutual Life case would now be included in the fourth element of the cost base of the shares.
