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Ruling

Subject: Capital Gains and holding costs

Can you include in your cost base holding expenses you paid for a third party which were not reimbursed by the third party.

Question and Answer

Question:

Can you include in your cost base holding expenses you paid for a third party which were not reimbursed by the third party.

Answer:

No

This ruling applies for the following period:

Year Ending 30 June 2012

The scheme commences on:

01 July 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You and three other parties bought a parcel of land in 2003, each having equal interest in the land (ie 25% each).

Since the date of purchase, you have paid all expenses incurred in relation to the land, (water, rates, land tax etc).

Two of the other parties have reimbursed you for their share of the expenses. One party has not. This party is now residing overseas, with half of their share now owned by their former spouse. The former spouse has not reimbursed you for any of these expenses either.

There was no written agreement in relation to the purchase of land or payment of expenses amongst the four parties.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 110-25

Income Tax Assessment Act 1997 Section 110-30

Income Tax Assessment Act 1997 Section 110-35

Reasons for decision

Capital Gains

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 CGT event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985.

You make a capital gain if your capital proceeds from the sale of your CGT asset are greater than your cost base for the purchase of that asset, for example, if you received more for an asset than you paid for it.

You make a capital loss if your reduced cost base for the purchase of that asset is greater than your capital proceeds resultant from the sale of that asset.

Cost base

The cost base of a CGT asset is generally the cost of the asset when you bought it. However, it also includes certain other costs associated with acquiring, holding and disposing of the asset.

In order to work out how much your capital gain or capital loss is, you must first establish the cost base or reduced cost base of your ownership interest in the property.

Section 110-25 of the ITAA 1997 states that the cost base of a CGT asset is made up of five elements.

The first element of your cost base includes money or property given for the asset.

The second element includes incidental costs of acquiring the asset, or costs in relation to the CGT event. Examples are agent's commission, advertising to find a seller or buyer, fees paid to an accountant.

You do not include costs if you:

· · have claimed a tax deduction for them in any 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.

The third element of your cost base includes non-capital costs of your ownership of the CGT asset, which include:

· · interest on money borrowed to acquire the asset; and costs of repairing, maintaining, or insuring it, and

· · interest on money you borrowed to refinance the money you borrowed to acquire the property; and

· · interest on the money you borrowed to finance the capital expenditure you incurred to increase the assets value.

You do not include such costs if you acquired the asset before 21 August 1991. Nor do you include them if you:

· · have claimed a tax deduction for them in any 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.

The fourth element is capital expenditure that you incurred to increase the assets value.

The fifth element is capital expenditure you incurred to establish, preserve or defend your title to the asset, or a right over the asset.

As joint owners the holding cost were incurred by each owner regardless of which owner actually met the expense. You are only entitled to include your share of the holding expenses in you cost base when calculating your share of the capital gain.