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Edited version of private ruling
Authorisation Number: 1011595687150
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Ruling
Subject: Timeshare deductions
Questions:
1. Are you entitled to a deduction for a loan repayment and property maintenance fees in relation to your holiday club membership?
Answer: No.
2. Can you include interest payments on a loan and maintenance fees relating to your holiday club membership in the cost base for capital gains tax (CGT) purposes?
Answer: No.
This ruling applies for the following period:
Year ended 30 June 2010
The scheme commenced on:
1 July 2009
Relevant facts and circumstances
You are a member of a holiday club.
The club is a managed investment scheme registered with and regulated as a timesharing arrangement by the Australian Securities and Investments Commission (ASIC).
You entered into a loan agreement as part of this membership.
You make monthly loan repayments and pay property maintenance fees annually in relation to this membership.
You did not receive any income as part of this membership in the year ended 30 June 2010.
As part of your membership, you receive points that you can exchange for holiday accommodation.
You signed a member acknowledgement agreement when you joined the club that states:
I/we are not acquiring Club Membership with the expectation of making a financial investment or profit. The Club does not operate, or otherwise provide a rental, buy-back or re-sale program.
You are able to transfer your membership by sale, gift, will or intestate disposition.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Income Tax Assessment Act 1997 Section 100-35.
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 110-25.
Income Tax Assessment Act 1997 Section 116-20.
Income Tax Assessment Act 1997 Section 108-20.
Income Tax Assessment Act 1997 Section 108-30.
Reasons for decision
Deductibility of loan repayments and maintenance fees
Section 8-1 of the Income Tax Assessment Act 1997 (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 nature, or relate to the earning of exempt income.
In your case you have incurred expenses relating to a loan repayment and property maintenance fees. You have not, however, produced any assessable income in relation to these expenses. Furthermore, you did not join the club in order to produce assessable income. As such, you have not incurred the loan repayment and property maintenance expenses in gaining or producing assessable income.
Therefore, you are not entitled to a deduction for these expenses.
Capital gains tax (CGT)
You make a capital gain or capital loss if and only if a CGT event happens. CGT events are the different types of transactions or happenings which may result in a capital gain or a capital loss.
The disposal of a CGT asset is the most common CGT event and is referred to as CGT event A1. A taxpayer disposes of a CGT asset if a change of ownership occurs from the taxpayer to another entity.
Special rules regarding CGT apply to assets that are personal use assets.
A personal use asset includes an asset that is used or kept mainly for your personal use or enjoyment (section 108-20 of the ITAA 1997).
Your club membership falls within this definition, as it is used for earning points for your holidays, and it was not acquired by you for the purposes of making a financial investment or profit.
Section 108-30 of the ITAA 1997 states that in working out the cost base of a personal use asset, you must disregard the third element of the cost base.
The third element of the costs of owning a CGT asset include interest on money you borrowed to acquire the asset and the costs of maintaining and repairing it (section 110-25 of the ITAA 1997).
In your case you have incurred expenses relating to interest on a loan repayment and property maintenance fees. These expenses fall within the third element of the cost base. As your club membership is a personal use asset, you cannot include costs that fall within the third element when calculating your capital gain or capital loss.
Therefore, you cannot include the expenses relating to interest on a loan repayment and property maintenance fees in the cost base of your club membership.