ATO Interpretative Decision
ATO ID 2010/73 (Withdrawn)
Income TaxCapital gains tax: first home owners grant - cost base
FOI status: may be released
This ATO ID is withdrawn. This ATO ID is a straight application of law and guidance on the basis of the decision can be found in Cost base (QC 17161).This document has changed over time. View its history.
Status of this decision: Decision withdrawn 22 December 2017.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.
If a taxpayer incurs expenditure in building a house on land they already own, and the taxpayer receives a grant under the First Home Owners Grant Scheme in connection with the construction of the house, does subsection 110-45(3) of the Income Tax Assessment Act 1997 (ITAA 1997) require the taxpayer to exclude from the cost base of the property expenditure equal to the amount of the grant received?
Yes. Subsection 110-45(3) of the ITAA 1997 requires the taxpayer to exclude from the cost base of the property so much of the expenditure incurred as equals the amount of the grant because a grant received under the First Home Owners Grant Scheme is considered to be a recoupment of that expenditure (and because the grant is not included in the taxpayer's assessable income).
The owner of land acquired after 13 May 1997 entered into a contract for a home to be built on the land. The contract required the owner to pay a certain amount for the construction of the home.
The owner qualified for the First Home Owners Grant Scheme administered by their State Government.
When the property was eventually sold the owner was only entitled to a partial main residence exemption because part of the home was used to produce assessable income throughout the ownership period.
In working out the amount of the capital gain on sale of the property the owner questioned whether the grant received under the First Home Owners Grant Scheme was taken into account in calculating the property's cost base.
Reasons for Decision
The owner's expenditure to build the home falls under the fourth element of the cost base of the land. It is expenditure the owner incurred to increase the land's value (subsection 110-25(5) of the ITAA 1997).
However, subsection 110-45(3) of the ITAA 1997 provides that expenditure does not form part of any element of the cost base to the extent of any amount you have received as recoupment of it, except so far as the amount is included in your assessable income.
Recoupment is defined in section 20-25 of the ITAA 1997 to include a grant in respect of a loss or outgoing.
A grant received under the First Home Owners Grant Scheme is considered to be in respect of the outgoing incurred to build the owner's home and is thus, to the extent of the amount of the grant, a recoupment of that expenditure for the purposes of subsection 110-45(3) of the ITAA 1997.
As a grant received under the First Home Owners Grant Scheme is not ordinary income (see ATO ID 2001/715) and is not statutory income in the recipient's hands, no amount in respect of it is included in the recipient's assessable income.
Therefore, expenditure to build the home does not form part of any element of the cost base of the land to the extent of the amount of the grant.Date of decision: 12 March 2010
Year of income: Year ended 30 June 2010
ATO ID 2001/715
CGT cost base