ATO Interpretative Decision
ATO ID 2003/668 (Withdrawn)
Income Tax
Capital gains tax: cost base - costs of hiring furniture and ornamentsFOI status: may be released
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This ATO ID is withdrawn and is replaced by ATO ID 2006/154This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Can a taxpayer who sold a rental property include the costs of hiring furniture and ornaments used in marketing the property as part of the cost base of the property under section 110-25 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The costs of hiring furniture and ornaments cannot be included as part of the cost base of the rental property under any of the five elements set out in section 110-25 of the ITAA 1997.
Facts
The taxpayer owned a rental property, which they decided to sell after the tenants vacated the premises.
The taxpayer hired furniture and ornaments as part of their marketing strategy to sell the property.
The rental property was sold in April 2003. The taxpayer wished to include the costs of hiring the furniture and ornaments as part of the cost base of the rental property.
Reasons for Decision
Section 110-25 of the ITAA 1997 provides that the cost base of a CGT asset consists of five elements.
The first element of the cost base 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 (subsection 110-25(2) of the ITAA 1997). The costs of hiring furniture and ornaments do not represent acquisition costs within the meaning of subsection 110-25(2) 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 CGT asset or which relate to a CGT event that happens in relation to the CGT asset (subsection 110-25(3) of the ITAA 1997).
Section 110-35 of the ITAA 1997 sets out the five types of incidental costs that can be included in the cost base of a CGT asset. The costs of hiring furniture and ornaments are not one of the five types of incidental costs listed in section 110-35.
The third element of the cost base is the non-capital costs of ownership of the asset incurred except to the extent this expenditure has been deducted or is deductible (but only for an asset acquired after 20 August 1991). Non-capital costs of ownership 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).
In this case, the costs of hiring furniture and ornaments are not directly related to the ownership of the rental property. The expenditure represents costs relating to the disposal of the asset rather than ownership of the asset.
The fourth element of the cost base is capital expenditure incurred to increase the asset's value, which must be reflected in the state or nature of the asset at the time of the CGT event (subsection 110-25(5) of the ITAA 1997).
In this case, it is considered that the costs of hiring furniture and ornaments were incurred to increase the property's appeal to prospective purchasers rather than to increase the asset's value as provided in subsection 110-25(5) of the ITAA 1997. Even if the expenditure did increase the asset's value, it could not be said that the expenditure was reflected in the state or nature of the rental property at the time of the CGT event as the furniture and ornaments were separate to, and did not form part of, the rental property.
The fifth element of the cost base is capital expenditure incurred to establish, preserve or defend the title to the asset, or a right over the asset (subsection 110-25(6) of the ITAA 1997). The costs of hiring furniture and ornaments do not fall within this element of the cost base as they are not expenditure incurred to establish, preserve or defend the title to the rental property.
Accordingly, the costs of hiring furniture and ornaments cannot be included as part of the cost base of the rental property. They do not form part of the cost base of the rental property under any of the five elements set out in section 110-25 of the ITAA 1997.
Date of decision: 16 April 2003Year of income: Year ended 30 June 2003
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
ATO ID 2003/421
Keywords
Capital gains tax
CGT assets
CGT cost base
ISSN: 1445-2782
| Date: | Version: | |
| 16 April 2003 | Original statement | |
| You are here | 23 June 2006 | Archived |
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