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On 13 January 2010, the ATO withdrew Taxation Determination TD 2004/2 (Income tax: capital gains: is reflection in the "value" of an asset sufficient to constitute reflection in its "state" or "nature" for the fourth element of cost base and reduced cost base (ss 110-25(5) and 110-55(2) of ITAA 1997 and what are the implications of this issue for a shareholder that makes a non-scrip share capital contribution to a company?) with effect from the same day.

Taxation Determination TD 2004/2 is being withdrawn following the majority decision of the Full Court of the Federal Court in National Mutual Life Association of Australia v. Federal Commissioner of Taxation [2009] FCAFC 96, 2009 ATC 20-124, which rejected the Commissioner's view as set out in TD 2004/2 that capital expenditure reflected in an asset's value was not sufficient to be considered to be reflected in the asset's state or nature and form part of its reduced cost base under former s 160ZH(3)(c) of ITAA 1936.

Note that for CGT events happening on or after 1 July 2005, ss 110-25(5) and 110-55(2) of ITAA 1997 have been amended. There is no longer a requirement that the expenditure must be reflected in the "state or nature" of the asset at the time of the CGT event. Therefore, the ATO states that a replacement Determination is not required.

For a copy of TD 2004/2W, go here


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