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This edited version has been archived due to the length of time since original publication.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.

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Edited version of your written advice

Authorisation Number: 1051348911461

Date of advice: 20 March 2018

Ruling

Subject: CGT - deductions and cost base applicable to a non-income producing property.

Question

If no rental income is generated is a property still subject to capital gain tax?

Answer

Yes

If you chose not to rent your investment property, CGT is applicable in the same way as a rental property. Division 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that any kind of property is a CGT asset.

Question

Are you able to claim income tax deductions for the costs of owning a property where there is no intention for it to become an income producing asset?

Answer

No

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic in nature, or relate to the earning of exempt income.

Accordingly, to be able to claim expenses that relate to the property you must have held the property for the purpose of gaining or producing assessable income, and those expenses must not be of a private or domestic nature.

As you will not use your property for producing assessable income, you will not be able to claim deduction

Question

Are you able to include the costs of ownership in the property’s cost base and what costs are eligible?

Answer

Yes

As you cannot claim deduction because you will not use your property to produce assessable income you can include the following in the cost base as per Section 110-25(4) of the ITAA 1997:

This ruling applies for the following period

Year ending 30 June 20XX

The scheme commenced on

1 January 20XX

Relevant facts

The entity’s family member will retire at the end of the year and would like to live in the same town as the entity.

The entity wants to purchase a property for the family member to live in rent free and will apply for an investment loan.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 108-5

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 110-25(4)

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