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Edited version of private ruling
Authorisation Number: 1011733624037
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Ruling
Subject: Capital gains tax - third element of the cost base
Question 1: Are the costs you incurred whilst your unit was used as your holiday home included in the third element of the cost base?
Answer: Yes.
Question 2: Can real estate be classed as a private use asset?
Answer: No.
This ruling applies for the following period
30 June 2009
The scheme commenced on
1 July 2008
Relevant facts
After 21 August 1991 you purchased a unit.
You used the unit as your holiday home.
In mid 2007 the unit became a rental property.
The unit was disposed of late 2008.
You made a capital gain on the disposal of the unit.
In your calculations you did not include any rates and land tax in the cost base during the period it was your holiday home.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section108-30
Income Tax Assessment Act 1997 Section 110-25
Income Tax Assessment Act 1997 Section 108-20
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 109-5.
Reasons for decision
Ownership interest
You have an ownership interest in a property if:
· you have a legal or equitable interest in the land which the dwelling is erected upon; and
· you have a right or licence to occupy the dwelling.
Your legal ownership of a dwelling or land is from the date of settlement of the contract of purchase until the date of settlement of the contract of sale.
In your case, you had an ownership interest in the unit from the date of settlement of the contract of purchase until the date of settlement of contract upon its disposal.
The Australian Taxation Office does not have a definition of land. The common law definition of land is - an area of ground together with any trees, crops or permanently attached buildings and including the air above and the soil beneath.
Cost base - third element
The third element of the cost base - costs of owning the asset. This element includes rates, land taxes, repairs and insurance premiums. Non-deductible interest on borrowings to finance a loan used to acquire a capital gains tax (CGT) asset and on loans used to finance capital expenditure you incur to increase an asset's value are also third element costs.
You do not include such costs if you acquire the asset before 21 August 1991. Nor do you include them if you:
· have claimed them as a tax deduction in any income year, or
· omitted to claim a deduction but can still claim it because the period for amending the relevant income tax assessment has not expired.
You cannot include them at all in the cost base of collectables or personal use assets.
The unit was used for income producing purposes from mid 2007 until its disposal in late 2008, so your costs you incurred are tax deductible.
Therefore, you can claim the costs you incurred, such as rates and land tax under the third element of the cost base, during the period you used the unit as your holiday home.
Personal use assets
A personal use asset is defined as:
· a CGT asset, other than a collectable, that is used or kept mainly for the personal use or enjoyment of you or your associate(s)
· an option or a right to acquire a personal use asset
· a debt resulting from a CGT event involving a CGT asset kept mainly for your personal use and enjoyment, or
· a debt resulting from your doing something other than gaining or producing your assessable income or carrying on a business.
Personal use assets may include such items as boats, furniture, electrical goods and household goods. Assets that are not viewed as personal use assets include items such as land, shares in a company, share rights and options, leases and units in a trust.
The unit is not considered to be a personal use asset.