ATO Interpretative Decision
ATO ID 2004/732 (Withdrawn)
Income tax
Capital gains tax: cost base: travel and accommodation costs relating to initial repairsFOI status: may be released
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ATO ID 2004/732 is withdrawn from the database because, following legislative changes contained in Tax Law Amendment (2006 Measures No 1) Act 2006 (Act No 32 of 2006), it is no longer current for CGT events happening on or after 1 July 2005. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of decisions for CGT events happening before that date. In respect of events happening on or after that date please refer to ATOID 2007/67.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 incurs travel and accommodation costs to carry out initial repairs on a property they use for income producing purposes include these 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 to undertake initial repairs cannot be included as part of the cost base of the property under section 110-25 of the ITAA 1997.
Facts
The taxpayer purchased an investment property in the 2002 income year. The property was located a substantial distance from the taxpayer's residence.
Shortly after its acquisition, the taxpayer undertook minor repairs and renovations to the property to make it more attractive to potential tenants.
During the course of the repairs and renovations, serious white ant damage was discovered. The taxpayer incurred substantial expenditure in rectifying the damage.
On completion of the repairs and renovations, the property was rented to tenants.
All of the repairs and renovations were initial repairs of a capital nature and the costs incurred by the taxpayer in making them were therefore not deductible.
The taxpayer also incurred substantial travel and accommodation costs in carrying out the repairs. These costs were also not deductible.
The taxpayer sold the property in the 2005 income year. In working out the amount of their capital gain the taxpayer sought to include the travel and accommodation costs in 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 and accommodation costs incurred in carrying out initial repairs on a property are not considered acquisition costs within the meaning of subsection 110-25(2) of the ITAA 1997 because 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 carrying out initial repairs to a property are capital costs and therefore do not form part of the third element of the cost base of the property.
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 undertake initial repairs to a property clearly do not fall within either of these elements.
Accordingly, the travel and accommodation costs the taxpayer incurred to undertake the repairs to their property 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 2005
Legislative References:
Income Tax Assessment Act 1997
section 110-25
subsection 110-25(2)
subsection 110-25(3)
subsection 110-25(4)
subsection 110-25(5)
subsection 110-25(6)
section 110-35
Related Public Rulings (including Determinations)
Taxation Ruling TR 97/23
Taxation Determination TD 98/19
ATO ID 2003/771
ATO ID 2003/772
ATO ID 2003/773
Keywords
accommodation expenses
capital gains tax
CGT cost base
repairs & maintenance expenses
repairs in entirety
travel expenses
ISSN: 1445-2782
| Date: | Version: | |
| 19 August 2004 | Original statement | |
| You are here | 27 April 2007 | Archived |