This Draft TD, issued on Wed 24.4.2013, states that support payments made by a parent entity to its subsidiary are not deductible under s 8-1 since the support payments are capital in nature for the purposes of para 8-1(2)(a).
Further, the Draft indicates that such payments are included in the cost base and reduced cost base of the parent’s investment in the subsidiary and are therefore not deductible under s 40-880.
DATE OF EFFECT: When the final determination is issued, it is proposed to apply both before and after its date of issue.
COMMENTS are due by 24 May 2013. ATO contact: Natasha Zorzi – Tel: (07) 3213 5888; Fax: (07) 3213 5500; Email: Natasha.Zorzi@ato.gov.au.
[LTN 77, 24/4/13]
[FJM Note: In Australia, there is no concept of ‘paid in capital’ (as there is in the USA) but it is probably correct to say that the support payment is part of the cost base of the parent’s shares under s110-25 of the Income Tax Assessment Act 1997. It is likely to be part of the 4th element of the cost base as part of expenditure to: “the purpose or the expected effect of which is to increase or preserve the asset’s [shares in the subsiduary’s] value”.]