ATO Interpretative Decision

ATO ID 2002/806

Capital Gains Tax

Capital Gains Tax - Expenditure deduction for partial demolition of dwelling
FOI status: may be released

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Is the value attributable to the portion of a dwelling that was demolished an expense incurred in redeveloping the property under section 8-1 of the Income Tax Assessment Act 1997 ('ITAA 1997')?

Decision

No. The value of the portion of the original dwelling that was demolished during the redevelopment is not an allowable deduction under section 8-1 of the ITAA 1997.

Facts

The taxpayer purchased two blocks of land for redevelopment. One house straddled both blocks of land. The taxpayer partially demolished the house, resulting in separate dwellings on each of the blocks. The taxpayer then made additions to each of those dwellings.

Reasons for Decision

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.

The cost of demolishing part of the existing dwelling is expenditure of a capital nature. Therefore, no deduction is allowed under section 8-1 of the ITAA 1997 for expenses related to the partial demolition.

In addition, the notional value of the portion of the dwelling that was demolished does not constitute expenditure incurred, rather, it is part of the capital cost of the property at the time of acquisition.

Date of decision: 14 June 2002

Year of income: Year ending 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
section 8-1

Related ATO Interpretative Decisions
ATOID 2002/633

Keywords
Capital gains tax
Capital expenditure
Deductions & expenses
Demolition expenses
Redevelopment expenses

Siebel/TDMS Reference Number: DW262818

Business Line: Public Groups and International

Date of publication: 22 August 2002

ISSN: 1445-2782

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