| Disclaimer This edited version has been archived due to the length of time since original publication.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 written advice
Authorisation Number: 1013099159368
Date of advice: 28 September 2016
Ruling
Subject: Capital gains tax
Question
Do the travel expenses you incurred form part of the cost base when determining a capital gain on the sale of your property?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
You owned a rental property.
You decided to sell the property.
To obtain the best price you had the house vacated to refurbish.
During that time you stayed on site for a period of time and then returned home to maintain your residence.
During the upgrade you also travelled in the local area obtaining materials and trips to the refuse facility.
The vacant property's insurance was renewed with the condition that you visited the site one day a week to keep in good repair and remove mail and papers.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 110-25
Reasons for decision
You make a capital gain or capital loss as a result of a capital gains tax (CGT) event (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)).
The most common event, CGT event A1, happens if you dispose of an asset to someone else. CGT event A1 happened when you sold your property.
You make a capital gain if the capital proceeds from the sale are more than the asset's cost base. You make a capital loss if the capital proceeds are less than the asset's reduced cost base.
Capital proceeds is the term used to describe the amount of money that you receive as a result of a CGT event occurring. Therefore your capital proceeds are the amount of money that you received as a result of the sale of your property.
The assessable portion of any capital gain you make is included in the calculation of your taxable income in the year in which a property is sold.
Cost base
Section 110-25 of the ITAA 1997 provides that the cost base of a CGT asset consists of 5 elements. Your property 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.
Subsection 110-25(4) of the ITAA 1997 lists those items which may qualify as costs included in the third element of the cost base. These costs may include interest on money borrowed to acquire an asset, costs of maintaining, repairing and insuring an asset, rates and land tax, interest on money borrowed to refinance the money borrowed to acquire an asset, and interest on any money borrowed to finance capital expenditure incurred to increase an assets value.
In your case you were required to visit your property every week to keep it in good repair and remove mail and papers. As the main purpose of your travel was to maintain your property, these 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 your case you travelled to your property to carry out refurbishment work and also travelled in the local area to complete the refurbishment. This travel was undertaken in order to increase the value of your property. Consequently these travel expenses form part of the fourth element of the cost base.
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).
