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Edited version of private advice
Authorisation Number: 1052006035636
Date of advice: 27 July 2022
Ruling
Subject: CGT - cost base - interest expenses
Question
Can you add the interest expense on your home loan to the cost base of the two properties, prorated on the land value's interest expense, to the extent you have not claimed a deduction for the interest?
Answer
Yes.
Subsection 110-25(4) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that interest on money you borrowed to acquire an asset is included within the third element of the asset's cost base.
CGT event C1, under section 104-20 of the ITAA 1997, happened when the old building was demolished.
Then, if the capital proceeds from the demolition were nil, the cost base of the old building and land is attributed to the land only under the apportionment rule in section 112-30 of the ITAA 1997.
Upon subdivision, after constructing two separate dwellings on the property, the cost base of the land is then apportioned between the subdivided parts of land on a reasonable basis under subsection 112-25(3) of the ITAA 1997.
This ruling applies for the following periods:
The year ended 30 June YYYY
The year ended 30 June YYYY
The year ended 30 June YYYY
The year ended 30 June YYYY
The year ended 30 June YYYY
The year ended 30 June YYYY
The year ended 30 June YYYY
The scheme commences on:
DD/MM/YYYY
Relevant facts and circumstances
You purchased the property after 20 September 1985.
At the time of acquisition, the property comprised of land with an old building.
You took out a home loan to purchase the property and paid interest on that loan (the home loan).
After you acquired the property, you occupied it for a period, before renting it out.
You then occupied the property again.
You demolished the old building on the property on DD/MM/YYYY and constructed two houses in its place.
Meanwhile, you were still paying interest on the home loan.
You sold one of the houses on DD/MM/YYYY.
You sold the second house on DD/MM/YYYY.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-20
Income Tax Assessment Act 1997 subsection 110-25(4)
Income Tax Assessment Act 1997 subsection 112-25(3)
Income Tax Assessment Act 1997 section 112-30