ATO Interpretative Decision
ATO ID 2003/771 (Withdrawn)
Income Tax
Capital gains tax: cost base - travel costs relating to acquisition of propertyFOI status: may be released
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This ATOID is withdrawn because the ATO view on this matter is now included in the Guide to capital gains tax 2005-06 (page 12).This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can a taxpayer, who purchased a property after travelling interstate to inspect a number of properties, include travel and accommodation costs as part of the cost base of the property under section 110-25 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. Travel and accommodation costs incurred prior to the acquisition of the property cannot be included as part of its cost base under section 110-25 of the ITAA 1997.
Facts
The taxpayer travelled interstate to inspect a number of potential properties for purchase.
The taxpayer purchased one property.
The taxpayer later disposed of the property and made a capital gain.
The taxpayer sought to include the travel and accommodation costs that were incurred during the inspection trip as part of the cost base of the property.
Reasons for Decision
Section 110-25 of the ITAA 1997 provides that the cost base of a CGT asset consists of five elements:
- 1.
- acquisition costs
- 2.
- incidental costs
- 3.
- non-capital costs of ownership which are not deductible
- 4.
- capital expenditure to increase the value of the asset, and
- 5.
- capital expenditure to establish, preserve or defend title to the asset or a right over the asset.
The first element of the cost base, being the acquisition costs, is the total of the money paid, or required to be paid, and the market value of the property given, or required to be given, in respect of the acquisition of the asset.
Travel costs to find a suitable property to purchase are not considered acquisition costs within the meaning of subsection 110-25(2) of the ITAA 1997, as they are not money paid in respect of acquiring the property.
The second element of the cost base is the incidental costs that the taxpayer incurs in acquiring the asset or which relate to a CGT event that happens in relation to the asset (subsection 110-25(3) of the ITAA 1997).
Incidental costs that can be included in the cost base of a CGT asset are set out in section 110-35 of the ITAA 1997. Travel and accommodation costs are not listed as one of the incidental costs.
The third element of the cost base of an asset acquired after 20 August 1991 is the non-capital costs of ownership. The costs include, but are not limited to, interest on money borrowed to acquire the asset or to refinance such a borrowing, interest on money borrowed to finance capital improvements to the asset, repairs and maintenance, insurance premiums, rates and land tax (subsection 110-25(4) of the ITAA 1997).
Travel and accommodation costs incurred in relation to the acquisition of a property do not form part of the third element of the cost base of the property because they are capital costs.
The fourth and fifth elements of the cost base are provided under subsections 110-25(5) and (6) of the ITAA 1997 respectively. Travel and accommodation to acquire a property clearly do not fall within either of these elements of the cost base.
Accordingly, travel and accommodation costs cannot be included as part of the cost base of the property under section 110-25 of the ITAA 1997.
Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
Subdivision 110-A
section 110-25
subsection 110-25(2)
subsection 110-25(3)
subsection 110-25(4)
subsection 110-25(5)
section 110-35
ATO ID 2003/772
ATO ID 2003/773 ATO Interpretative Decisions overturned by this decision
ATO ID 2003/421
Keywords
Acquisition of assets
Capital expenditure
Capital gains tax
CGT cost base
Disposal of assets
Travel expenses
ISSN: 1445-2782
| Date: | Version: | |
| 23 July 2003 | Original statement | |
| You are here | 3 November 2006 | Archived |