| Disclaimer This edited version has been archived due to the length of time since original publication.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: 1051331131337
Date of advice: 25 January 2018
Ruling
Subject: Cost base and trading stock
Question 1
Are the additional purchase expenses of stamp duty, title fees and legal fees for the purchase of a rural property, able to be apportioned between the value of the land and the depreciable assets, per the qualified valuation report?
Answer
No
Question 2
Are the natural standing grasses on the purchase of the rural property, which were valued by a qualified valuer at the time of purchase, able to be treated as trading stock?
Answer
No
This ruling applies for the following period:
Year ending 30 June 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
You and your partner purchased a rural property in the 2017 financial year for the purpose of producing livestock for sale.
In addition to the cost of the land there were significant associated costs, including stamp duty, title fees and legal fees.
The purchase price included the following various items, listed below, which were valued by a qualified valuer upon the purchase of the property:
● Unimproved land
● Fixed improvements, including but not limited to:
● Buildings
● Fences
● Yards
● Water improvements
● Natural standing pasture/grasses
You have stated that these natural standing pasture/grasses are often harvested for the feeding of livestock in dry times.
Relevant legislative provisions
Section 8-1 of the Income Tax Assessment Act 1997
Section 70-10 of the Income Tax Assessment Act 1997
Section 110-25 of the Income Tax Assessment Act 1997
Section 110-35 of the Income Tax Assessment Act 1997
Reasons for decision
Question 1
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature.
Section 110-25 of the ITAA 1997 is about the cost base of a CGT asset. The cost base of a CGT asset has five elements, namely:
● money paid, or the market value of the property given, to acquire the asset
● incidental costs of acquiring the asset or that relate to the CGT event that happens in relation to the asset
● certain non-capital costs of ownership
● capital expenditure on improvements, and
● capital expenditure in respect of title or right to the asset.
Section 110-35 of the ITAA sets out the nine categories of incidental costs, namely:
● remuneration for the services of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal adviser (remuneration for professional tax advice, however, is not included unless it is provided by a recognised tax adviser)
● costs of transfer
● stamp duty or other similar duty
● costs of advertising for a buyer or seller
● valuation or apportionment costs
● search fees relating to a CGT asset
● the cost of a conveyancing kit (or a similar cost)
● borrowing expenses, and
● certain expenses incurred by the head company of a consolidated group.
The amounts you paid for stamp duty, title fees and legal fees are not deductible under section 8-1 of the ITAA 1997 because they are capital in nature.
The amounts you paid for stamp duty, title fees and legal fees form part of the CGT cost base of your asset under section 110-25 of the ITAA 1997.
Question 2
Trading stock is defined as including anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a business, and also includes livestock.
Standing or growing crops, including natural standing pasture or grasses, are part of the land on which it stands and only becomes trading stock when it is cut or harvested.
Fodder, including pasture and grasses, that is produced or purchased as feed for the taxpayer’s own livestock is not trading stock. If, however, fodder is produced for sale or purchased for resale, any such fodder on hand at the end of the income year must be taken into account as trading stock on hand.
In this case, the natural standing pasture/grasses, if harvested, would be used for the feeding of the taxpayer’s own livestock during dry times. Therefore, it would not be considered trading stock as it is not being held for the purposes of manufacture, sale or exchange in the ordinary course of the business.
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).
