• The impact of this case on ATO policy is discussed in Decision Impact Statement: Summers and Commissioner of Taxation (Published 8 July 2008).

SUMMERS v FC of T

Members:
BH Pascoe SM

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2008] AATA 152

Decision date: 26 February 2008

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BH Pascoe (Senior Member)

1. This is an application to review a decision of the respondent to disallow an objection by the applicant, Ms G. Summers, against an amended assessment of income tax for the year ended 30 June 2004. The objection was against the inclusion of $107,000 as an assessable capital gain on the sale of land.

2. At the hearing Ms Summers was unrepresented. The respondent was represented by Ms V. Bruton, an officer of the respondent. Evidence was given by Ms Summers.

3. The basic facts were not in dispute. Ms Summers purchased a vacant block of land in Kallista, Victoria on 31 July 1996 for $166,000 with settlement occurring on 1 November 1996. In June 2002 she entered into a contract with a builder to erect a dwelling on the land. In September 2002 the building contract was terminated. In the meantime, the builder had erected a two room shed on the property. On 24 June 2004, Ms Summers sold the property for $380,000. Prior to this, on 30 January 2004, Ms Summers had purchased a residential unit in which to reside. In response to a request for particulars of the sale, Ms Summers claimed that she had occupied the two room shed for approximately four months from January 2003 and that the main residence Capital Gains Tax (CGT) exemption applied.

4. The issues involved in this matter are:

• (a) whether the shed was Ms Summers' main residence through part or the whole of the ownership period;
• (b) whether she moved into the shed as soon as practicable after construction so as to have the benefit of the four year concession; and
• (c) what was the cost base of the property.

5. It has to be said that Ms Summers is an interesting lady with somewhat unusual working and living habits. She is forty four years of age, unmarried and has worked at two jobs for most of her working life. She is employed full time by Telstra as a personal assistant to a senior manager. In addition, since the age of 17, she has at a TAB agency. During the busy period in October and November at the TAB she regularly works double shifts and also works there on occasions such as Christmas Eve and New Years Eve when other staff are reluctant to work. As a consequence, Ms Summers said that she regularly works fourteen hours per day and uses her residence for sleeping only. For much of her working life she has lived in a variety of rented premises. She does not cook, buying all her meals, has always showered using the facilities at work and still does so and has never had a rubbish bin. She said that she owns a bed, refrigerator, washing machine and television set but no other furniture.

6. Ms Summers said that, because of regularly changing residence, she had, until the acquisition of the unit in 2004, maintained her parents' home as her mailing and electoral roll address. She said that she has never slept at her parents' current address. She also stored some possessions at the parents' home and still has some there.

7. Ms Summers said that the two room shed was erected and left by the builder. It was built for storage and lunch room by the builder. While she occupied the shed she took only a bed. There was no electricity or gas and she used candles for light. Mains water and toilet were connected. She maintained that her living conditions there were no worse than several other places in which she had lived over the years. Ms Summers said that in January 2003 she had lived in shared rental accommodation in Oakleigh. She said that the relationship with the person with whom she shared became difficult so she decided to move into the shed in Kallista. She accepted that it was not a long term proposition. After four months she negotiated a return to the Oakleigh premises with her former sharer and remained there until the purchase of the unit in 2004.

8. Ms Summers tendered a statutory declaration from her sisters confirming that Ms Summers went to live at the property in Kallista for "several months" in early 2003 and that she had visited her "a couple of times". While the sisters evidence was untested, I accept the evidence of Ms Summers that the shed on the property at Kallista was her main residence for

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approximately four months from January 2003. While her living conditions might be regarded as unusual and were temporary, I am satisfied that for this unusual and interesting lady, they were regarded by her as normal and reasonable. It was, at the time, her only residence to which she returned each day to sleep and, to her, was not significantly different to many other places in which she has resided.

9. Section 118-150 of the Income Tax Assessment Act 1997 (the Act) provides that, if you build a dwelling on land in which you have an ownership interest, you can treat it as your main residence for up to four years before it became your main residence if it becomes your main residence "as soon as practicable after the work is finished" and it continues to be your main residence for at least three months. In this case it is clear that the building which became Ms Summers' principal residence was erected by the builder for his use prior to the cancellation of the contract in September 2002. At the time it was completed she had no intention of living in it. It was only in January 2003, after a disagreement with her then tenancy sharer that she decided to moved to the Kallista shed. While the time gap may have been four months only, it cannot be said that she resided there "as soon as practicable" after completion of the building. Given the state of the building and the acceptance by Ms Summers of the level of accommodation in which she was prepared to live with her minimal possessions, as soon as practicable, in this case, would mean as soon as the building was available at the termination of the contract. The result of this is that the preceding four year period is not available pursuant to s 118-150.

10. By a combination of s 118-145 and s 118-185 the capital gain on the sale for the land in June 2004 is the proportion of the net gain applicable to the period from date of purchase to the date of use as a main residence over the total period of ownership. The total period of ownership was from 1 November 1996 to 24 June 2004 being 2792 days. The period up to the date of use as a main residence (assumed to be 1 January 2003) was 2252 days. This means that the assessable portion of the capital gain is 2252/2792 of that gain.

11. The final issue is the calculation of the cost base for the property for the purpose of calculating the capital gain. As a result of the objection, the respondent amended the calculation of the assessable capital gain to $90,912 calculated as:

Sale Price		$380,000
Less cost base
Purchase price	$166,000
Stamp duty	$ 6,160
Land Titles Office Fee	$ 617
Council Rates	$ 6,066
Water Rates	$ 268
Conveyancing cost on purchase	$ 383
Tree Removal	$ 1,375
Maintenance/mowing	$ 543
Builder (materials/labour)	$ 16,213
Conveyancing costs on sale	$ 550	$198,175
Total Gain		$ 181,825
50% Assessable Gain		$ 90,912

At the hearing, the respondent conceded that further additions to the cost base of $1,538 should be made on the basis of further documentation produced by Ms Summers. This amount was made up of:

Mowing costs	$ 330
Planning Permit	$ 430
Solicitors Fees	$ 462
Additional Water Rates	$ 316
	$1,538

12. Further amounts were claimed by Ms Summers as being included in the cost base. The first of these was $1,800 for fence repairs. She said that she was unable to now locate the receipts after ten years but was firm in her evidence that this was paid to repair the fence adjoining a rural property which was destroyed by cows from that property early in her period of ownership. The second item was the cost of regular mowing of the block. Ms Summers said that she had this done regularly to satisfy council requirements and neighbour expectations. The cost, paid by cash or money order was $100 pre GST or $110 post GST per time. She estimates the total cost at $9,337 over

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the period of ownership. Of this, the respondent is prepared to accept $330 substantiated by receipts. Whilst I am prepared to accept the evidence of Ms Summers that regular mowing was done and paid for, it is not clear what the frequency of such mowing was. She owned the property for some 92 months. If I assumed that mowing occurred at least every two months at $100 per time to 30 June 2000 the cost would have been $2,200 and at $110 from 1 July 2000 to 24 June 2004 would have been $2,640 a total of $4,840. The next item was the real estate agent's commission on the sale of the land. Ms Summers said that she was unable to locate the documents evidencing payment, but was clear that the agent charged two and a half per cent commission and $3,500 for advertising. While not otherwise substantiated, I am prepared to accept that such costs would have been incurred. The final item of costs claimed was $165 for soil testing. It was clear that this amount was incurred and Ms Summers was firm that the soil testing report was requested by and provided by her to the purchasers.

13. The result of the foregoing is that I am prepared to accept that the following additional expenditure should be included in the cost base pursuant to s 110-25 of the Act:

Fence repairs		$ 1,800
Mowing costs	$4,840
Less conceded by respondent	$ 330	$ 4,510
Sales Commission		$ 9,500
Advertising		$ 3,500
Soil Testing		$ 165
		$19,475

While some are estimates not supported by full documentation, I accept that Ms Summers was not aware of the implications of CGT until well after the date of sale, considerable time had elapsed and she was not assisted with any professional help.

14. The effect of all of this is that the assessable capital gain should be calculated as follows:

Sale Price		$380,000
Less
Cost Base per objection decision	$198,175
Further cost conceded by respondent	$1,538
Further costs per paragraph 13 above	$19,475	$219,188
		$160,822
Discounted by 50%		$80,411
Assessable portion (s 118-85)	2252	$64,858
	2792

This means that the assessable capital gain resulting from the objection decision should be reduced by a further $26,054.

15. The decision under review should be varied to the extent of reducing taxable income by a reduction of the assessable capital gain of $26,054.