Edited version of your private ruling

Authorisation Number: 1012168651836

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Subject: Capital gains tax - cost base - deductions - disposal

Question 1:

Is your method of valuing the first element of the cost base of your property acceptable?

Answer:

Yes.

Question 2:

Can you include costs incurred in travelling to body corporate meetings, real estate agents and solicitors in the cost base of your non-income producing property?

Answer:

No.

Question 3:

Can you include the costs of replacing the hot water system and roof repairs in the cost base of the property?

Answer:

Yes.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

Your spouse and your relative purchased a property prior to 20 September 1985.

The property was occupied by your parent's in law.

You purchased the interest in the property from your relative after 20 September 1985.

Your parent's in law paid rent for a number of years, the property then continued to be occupied by your parent's in law; however it was on a non rental basis. Your parent's in law were responsible for all ongoing costs of the property.

Your parent in law passed away and your other parent in law remained in the property for a number of years.

After a number of years your parent in law entered a nursing home.

Your parent in law passed away.

After the death of your parent in law, you were required to attend the annual body corporate meetings as your parent in law was unable to manage this task.

The property has been left vacant after your parent in law passed away and you recently disposed of the property.

Since the property has been vacated, you have replaced the hot water service, window awnings and undertaken repairs to the roof.

You are unsure of the purchase price of the property and all records held have been destroyed, except the title deed which was retained by the solicitor who acted on the sale.

The title deed shows the amount of stamp duty paid.

You have calculated that your purchase price of your relative's interest in the unit was an amount.

You reside a significant distance from property and have been required to travel to the property on two occasions to complete the sale of the unit.

You made a capital gain as a result of the sale.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Subsection 112-30(1A)

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

Income Tax Assessment Act 1997 Subsection 110-25(5)

Reasons for decision

The cost base of an asset is made up of five elements; the elements which relate to your situation are the acquisition cost, travel and capital improvements which can be categorised as the first, third and fourth elements.

The first element of the cost base of an asset is the total of the money you paid to acquire it, or the market value of any property you gave in respect of acquiring it.

In your case, this element contains the purchase price that you paid for the share of your relative's interest in the property. We accept that the method that you have used to establish the first element of the cost base of the property is reasonable.

The third element of the cost base of an asset includes the non-capital costs of ownership of the asset which are not deductible. These costs include, but are not limited to, interest on money borrowed to acquire the asset or to refinance such a borrowing, interest on money borrowed to finance capital improvements to the asset, repairs and maintenance, insurance premiums, rates and land tax. Travel costs would potentially fall within the third element. Third element costs can only be included in an assets cost base where the asset has been acquired after 20 August 1991.

In your situation, you acquired the property prior to 20 August 1991 and therefore third element expenses are not able to be included in the cost base of the property.

The fourth element of the cost base of a capital gains tax (CGT) asset is the capital expenditure incurred to increase the asset's value.

For expenditure to be included in the fourth element of the cost base of an asset it must be incurred 'to' enhance the value of the asset.

In your situation, you are able to include in the cost base under the fourth element the costs you incurred in replacing the hot water service, awnings and roof repairs as it is considered that these costs were incurred to enhance the value of the property.