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Edited version of your private ruling
Authorisation Number: 1012432987387
Ruling
Subject: Calculation of a capital gain or loss
Question 1
Where the capital proceeds you receive from the sale of a capital gains tax (CGT) asset are less than the cost base but more than the reduced cost base do you make a capital gain?
Answer
No
Question 2
Where the capital proceeds you receive from the sale of a CGT asset are less than the cost base but more than the reduced cost base do you make a capital loss?
Answer
No
This ruling applies for the following period:
Year ending 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts and circumstances
You purchased a property for the sole purpose of providing accommodation for your ex-spouse and child.
No rent was charged. You did not claim any costs in acquiring or holding the property as a tax deduction.
The property was sold in the 2012-13 financial year.
The capital proceeds from the sale of the property were $X.
The costs of the property were:
· Purchase price and incidental costs (first and second element of the cost base) $X
· Holding costs including interest, rates and insurance (third element of the cost base) $X
· Selling costs $X
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 100-45
Income Tax Assessment Act 1997 Section 110-25
Income Tax Assessment Act 1997 Section 110-55
Reasons for decision
The third element of the cost base of a CGT asset is made up of the costs of owning the asset, including rates, land taxes, repairs and insurance premiums. Non-deductible interest on borrowings to finance a loan used to acquire a CGT asset and on loans used to finance capital expenditure you incur to increase an asset's value are also third element costs.
You do not include such costs if you acquired the asset before 21 August 1991.
Also, you do not include them if you:
· have claimed a tax deduction for them in any income year, or
· did not claim a deduction but can still claim it because the period for amending the relevant income tax assessment has not ended.
The third element of the reduced cost base of a CGT asset differs from the third element of the cost base and does not include ownership costs. Accordingly, these costs cannot be used to work out a capital loss.
Section 100-45 of the Income Tax Assessment Act 1997 (ITAA 1997) provides the process required to calculate the capital gain or loss made from most CGT events. At step 7 it provides,
If the capital proceeds are less than the cost base but more than the reduced cost base, you have neither a capital gain nor a capital loss.
In your case, the capital proceeds you received were less than the cost base of your property. Additionally, as a result of ownership costs not being included in the reduced cost base, the capital proceeds were more than the reduced cost base of your property. Therefore, in accordance with section 100-45 of the ITAA 1997, you have made neither a capital gain nor a capital loss.
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