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Edited version of your written advice

Authorisation Number: 1012739980393

Ruling

Subject: Cost base

Question 1

Can you forgo a deduction for depreciation and capital works in relation to an investment property and not reduce the cost base for capital gains tax purposes?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

The scheme commences on:

1 July 2014

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 own a share in a number rental properties.

You are a low income earner and generally earn below the tax free threshold.

You are claiming deduction expenses and capital allowances on the rental properties.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 110-45(1B).

Reasons for decision

A capital gain is made on the disposal of a CGT asset when the proceeds received from the sale are more that the cost base of the asset. Accordingly, to determine the extent of any assessable gain, it is necessary to determine the cost base of the asset.

Subsection 110-45(1B) of the Income Tax Assessment Act 1997 (ITAA 1997) details that expenditure does not form part of the second or third element of the cost base to the extent that you have or can deduct it.

Taxation Determination TD 2005/47 explains that under Division 110 of the ITAA 1997 you can deduct an amount at a particular time if:

TD 2005/47 provides the following example:

In your case, you want to make a choice as to whether or not you will claim depreciation and capital works as a deduction from your rental properties each year. However, as you can deduct amounts for depreciation and capital works, you are required to reduce the cost base of your investment property for CGT purposes.


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