ATO Interpretative Decision

ATO ID 2003/421 (Withdrawn)

Income Tax

Capital gains tax: cost base - travel and accommodation costs
FOI status: may be released
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 can not be included as part of the cost base of the property. They are not considered to form part of the cost base of the property under any of the five elements of the cost base provided under section 110-25 of the ITAA 1997.

Facts

The taxpayer travelled interstate in the 1999-2000 income year to inspect a number of potential rental properties marketed by a developer for purchase.

The taxpayer purchased one rental property at auction while interstate.

The taxpayer disposed of the rental property in the 2001-02 income year and made a capital gain.

The taxpayer wanted to include the travel and accommodation costs that were incurred during the trip interstate as part of the cost base of the rental property.

Reasons for Decision

The cost base of a CGT asset as provided in section 110-25 of the ITAA 1997 consists of the following 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
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 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 rental 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 is the non-capital costs of ownership which are not deductible but only for an asset acquired after 20 August 1991. They 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 by the taxpayer during the trip interstate are not costs relating to the ownership of the rental property. For costs to fall within the third element of the cost base, the costs incurred must be directly related to the ownership of the asset. In this case, the costs have not been incurred as a direct result of the ownership of the rental property as the costs would still have been incurred by the taxpayer even if they were ultimately unsuccessful in acquiring the property at auction during the interstate trip. Therefore, travel and accommodation costs are not considered non-capital costs relating to the ownership of the rental property in accordance with subsection 110-25(4) of the ITAA 1997.

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 costs clearly do not fall within either of these elements of the cost base as they do not constitute capital expenditures.

Accordingly, travel and accommodation costs can not be included as part of the cost base of the rental property. They are not considered to form part of the cost base of the rental property under any of the five elements of the cost base provided under section 110-25 of the ITAA 1997.

Date of decision:  21 May 2003

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   Subdivision 110-A
   section 110-25
   subsection 110-25(1)
   subsection 110-25(2)
   subsection 110-25(3)
   subsection 110-25(4)
   subsection 110-25(5)
   subsection 110-25(6)
   section 110-35

Keywords
Acquisition of CGT assets
Capital gains tax
CGT cost base

Business Line:  Losses and Capital Gains Tax Centre of Expertise

Date of publication:  30 May 2003

ISSN: 1445-2782

history
  Date: Version:
  21 May 2003 Original statement
You are here 29 August 2003 Archived

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