| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012087788761
This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.
Ruling
Subject: Capital gains tax
Questions and Answers
1. Do travel expenses incurred in the building, maintenance and landscaping of your holiday home form part of the cost base when determining a capital gain on the sale of your holiday home?
Yes
2. Can you use the cents per kilometre method to calculate your travel expenses as part of the cost base?
Yes
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You bought a vacant block of land after 20 September 1985 in your name.
You built a holiday home on the block of land.
The shell of the home was built by a building construction company. You and your spouse completed the rest of the home.
You and your spouse then built a shed, verandah and patio.
You visited the holiday home every fortnight for maintenance and landscaping purposes. You and your spouse worked all day, taking a break for lunch. Sometimes you and your spouse would stay the night, but often you both returned home on the same day.
No other family members used to accompany you and your spouse.
You incurred travelling expenses for the building/maintenance/landscaping of the holiday home.
You travelled a minimum of X kilometres per annum to build the holiday home and for building, maintenance and landscaping purposes during your ownership period.
You sold the holiday home in the 2010-11 income year and made a gain.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-5.
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 108-55
Income Tax Assessment Act 1997 Section 110-25
Income Tax Assessment Act 1997 Subsection 110-25(4).
Income Tax Assessment Act 1997 Subsection 110-25(5).
Reasons for decision
Cost base
Section 110-25 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the cost base of a capital gains tax (CGT) asset consists of 5 elements. Your holiday home is a CGT asset.
The relevant elements in this case are the third and fourth elements.
Third element
The third element of the cost base of an asset acquired after 20 August 1991 includes the non-capital costs of ownership of the asset which are not deductible. 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.
Travel costs incurred to carry out maintenance on a property will be directly related to the ownership of that property if the performance of the maintenance was the main purpose for undertaking the travel.
In your case you visited your holiday home every fortnight for maintenance and landscaping purposes. You and your spouse worked all day, taking a break for lunch. Sometimes you and your spouse would stay the night, but often you both returned on the same day. As the main purpose of your travel was to carry out maintenance and landscaping work, your travel costs can be included in the third element of the cost base.
Fourth element
The fourth element of the cost base relates to capital expenditure incurred to increase the value of an asset. In this case the relevant asset was the block of land you purchased in 2001. As the land was purchased after 20 September 1985, the fixture attached to the land (your holiday home) was considered to be part of the same asset.
In your case, the initial structure of your holiday home was carried out by a building construction company. After that you and your spouse travelled to the holiday home to complete the construction. You both then built a shed, varandah and patio. These items are considered to be capital expenditure as they increased the value of the land.
You have indicated that the sole purpose of the travel expenditure was in connection with the construction of the holiday home, shed, verandah and patio and thus the travel expenses form part of the fourth element of the cost base.
Cents per kilometre method
You may calculate your travel expenses to be included in your cost base by using the cents per kilometre method.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
