ATO Interpretative Decision

ATO ID 2001/611 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as it does not clearly express the ATO view on this issue.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are expenses incurred in selling a taxpayer's main residence deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. Expenses incurred in selling the taxpayer's main residence are not deductible under section 8-1 of the ITAA 1997 as they were not incurred in gaining or producing assessable income.

Facts

The taxpayer acquired a property which was used as a main residence throughout the ownership period. Subsequently, the taxpayer sold the main residence and incurred advertising expenses and solicitor fees.

The proceeds from the sale of the main residence were invested in a term deposit with a bank and interest income from that investment was received.

Reasons for Decision

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business.

The taxpayer does not derive ordinary income from the sale of the main residence. However, the interest income derived from the term deposit is ordinary income.

Section 6-10 of the ITAA 1997 includes amounts of statutory income in the assessable income of a taxpayer.

Subsection 100-25(3) of the ITAA 1997 states that a home is a capital gains tax (CGT) asset. Subsection 100-20(1) of the ITAA 1997 states that you can make a capital gain or loss only if a CGT event happens. The disposal of a home is a CGT event A1, under section 104-5 of the ITAA 1997. Accordingly, a taxpayer who disposes of a home derives a capital gain which is statutory income. However, subsection 118-110(1) of the ITAA 1997 states that a capital gain or loss arising from the disposal of a home is disregarded where the:

•

taxpayer is an individual;

•

the dwelling was the taxpayer's main residence throughout the ownership period; and

•

ownership did not pass to the taxpayer as a beneficiary and the taxpayer did not acquire the dwelling as a trustee of a deceased estate.

The taxpayer did not derive any statutory income from the disposal of the main residence as a capital gain on disposal is disregarded.

Subsection 6-15(1) of the ITAA 1997 states that if an amount is not ordinary income or statutory income, it is not assessable income.

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

As the taxpayer did not receive ordinary income or statutory income from the disposal of the main residence, section 8-1 of the ITAA 1997 precludes any deduction of expenses associated with that event because they were not incurred in gaining or producing assessable income. Accordingly, advertising and solicitors fees incurred by the taxpayer are not allowable deductions under section 8-1 of the ITAA 1997.

Year of income:  Year ended 30 June 2000 Year ended 30 June 2001 Year ending 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   subsection 6-5(2)
   section 6-10
   subsection 6-15(1)
   section 8-1
   subsection 100-20(1)
   subsection 100-25(3)
   section 104-5
   subsection 118-110(1)

Keywords
Deductions & expenses
Main residence
Exempt capital gain

Business Line:  Small Business/Individual Taxpayers

Date of publication:  22 November 2001

ISSN: 1445-2782