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Edited version of private ruling
Authorisation Number: 1011774528003
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Ruling
Subject: Cost base and depreciation
Question and answer:
Are you entitled to include depreciable items in the cost base of your rental property?
No.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts
You purchased a rental property.
Included in the purchase were fixtures and fittings, although these items were not itemised in the purchase contract.
You obtained a report that provided the value of various fixtures and fittings.
During the period of your ownership you have claimed a deduction for the decline in value of the fixtures and fittings.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 108-5
Income Tax Assessment Act 1997 Division 40
Income Tax Assessment Act 1997 Section 108-60
Income Tax Assessment Act 1997 Section 118-24
Reasons for decision
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. The most common CGT event is an A1 and happens if you dispose of an asset to someone else.
Under section 108-60 of the ITAA 1997, a depreciating asset that is part of a building or structure is taken be a separate CGT asset from the building or structure. This is regardless of whether the assets were purchased at the same time and under the same contract.
Division 40 of the ITAA 1997 allows a deduction equal to the amount of the decline in value of a depreciating asset held at any time during the year to the extent that it is used to produce assessable income.
For depreciating assets that you hold, any capital gain or capital loss you make from their disposal is disregarded under section 118-24 of the ITAA 1997 where the decline in the value of those assets was worked out under Division 40 of the ITAA 1997 (except for those provisions under subdivision 40-F and 40-G of the ITAA 1997 which relate to primary production).
In your case, you own a rental property. Included in the purchase price of the property were fixtures and fittings. You obtained a report that apportioned a value to the fixtures and fittings and have subsequently been claiming a deduction for decline in value of these assets in the income years since you purchased the property. As you have been claiming a deduction for the decline in value, they are not included in the cost base of the rental property, under section 118-24 of the ITAA 1997.