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Ruling

Subject: Capital gains tax (CGT) - Cost base - Travel expenses relating to acquisition of investment properties

Can you include the travel costs, postage and telephone expenses incurred in relation to the acquisition of your investment properties in the cost base of the investment properties?

No.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on:

1 July 2009.

Relevant facts and circumstances

You and your spouse are purchasing apartments off the plan as investments (the apartments).

The apartments will not be available for rent for between several months and a few years from the date of purchase.

You and your spouse have incurred travel costs, postage and telephone expenses in the process of purchasing the apartments, such as paying deposits, signing contracts, making colour selections and organising finance.

The travel costs, postage and telephone expenses have not been incurred in regard to earning an income from the apartments.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 110-25

Income Tax Assessment Act 1997 Section 110-35

Income Tax Assessment Act 1997 Section 110-55.

Reasons for decision

Summary

You cannot include the travel costs, postage and telephone expenses incurred in relation to the acquisition of your investment properties in the cost base of the investment properties.

Detailed reasoning

The cost base of a CGT asset consists of the following five elements:

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 costs, postage and telephone expenses incurred by you in relation to purchasing the apartments, such as paying deposits, signing contracts, making colour selections and organising finance are not considered acquisition costs, as they are not money paid in respect of acquiring the property.

The second element of the cost base is the incidental costs incurred in acquiring the asset or which relate to a CGT event that happens in relation to the asset.

Incidental costs that can be included in the cost base of a CGT asset are set out in section 110-35 of the Income Tax Assessment Act 1997 (ITAA 1997). Travel costs, postage and telephone expenses 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.

Travel costs, postage and telephone expenses incurred in relation to the acquisition of a property do not form part of the third element of the cost base of the property because they are capital costs and are not a cost of ownership.

The fourth and fifth elements of the cost base clearly do not include travel costs, postage or telephone expenses to acquire a property.

Accordingly, travel costs, postage and telephone expenses cannot be included as part of the cost base of the apartments under section 110-25 of the ITAA 1997.

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