Edited version of private advice

Authorisation Number: 1052262978701

Date of advice: 20 June 2024

Ruling

Subject: Cost base - second element

Question

Are the travel expenses (flights, accommodation, and car hire) incurred by you to facilitate the sale of an investment property in Country A included as second element costs under sections 110-25(3) and 110-35(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You owned an investment property in another country which you purchased on XX December 20XX.

You sold the investment property on XX April 20XX.

You travelled to the other country as you were the only person to hold keys to the property, authorised to sign the contracts for the sale of the property and found it easier to complete the sale in person.

You incurred costs for flights, accommodation and car hire for the travel to the other country.

There was no personal component to the travel. All your activities while in the other country were directly related to the sale of the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 110-25

Income Tax Assessment Act 1997 section 110-35

Reasons for decision

In working out your capital gain, you determine the cost base of the CGT asset involved in the CGT event. In working out your capital loss, you determine the reduced cost base of the CGT asset involved with the CGT event.

Section 110-25 of the ITAA 1997 sets out the elements that form part of the cost base. The cost base is made up of five elements:

1.            The first element is made up of money paid or required to be paid to acquire the CGT asset.

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

3.            The third element consists of non-capital costs incurred in connection with your ownership of a CGT asset. Examples are interest, rates, repairs and insurance premiums.

4.            The fourth element includes capital expenditure you incur to increase the value of the CGT asset if the expenditure is reflected in the state or nature of the asset at the time of the CGT event.

5.            The fifth element includes capital expenditure you incur to preserve or defend your title or rights to the asset.

The following elements are considered in section 110-35 of the ITAA 1997 as incidental costs (second element under section 110-25 of the ITAA 1997) that you may have incurred relating to a CGT event.

The first is remuneration for the services of a surveyor, valuer, auctioneer, accountant, broker, * agent, consultant or legal adviser.

The second is costs of transfer.

The third is stamp duty or other similar duty.

The fourth is:

(a) if you * acquired a • CGT asset--costs of advertising or marketing to find a seller; or

(b) if a * CGT event happened--costs of advertising or marketing to find a buyer.

The fifth is costs relating to the making of any valuation or apportionment.

The sixth is search fees relating to a * CGT asset.

The seventh is the cost of a conveyancing kit (or a similar cost).

The eighth is borrowing expenses (such as loan application fees and mortgage discharge fees).

The ninth is expenditure that:

(a) is incurred by the • head company of a * consolidated group or * MEC group to an entity that is not a * member of the group; and

(b) reasonably relates to a * CGT asset * held by the head company; and

(c) is incurred because of a transaction that is between members of the group.

The tenth is termination or other similar fees incurred as a direct result of your ownership of a * CGT asset ending.

In your case, you sold an investment property that you owned in another country. As you were the only person to hold the keys and enter a contract to sell the property, you incurred flight, accommodation and car hire costs to travel to the other country to facilitate the sale of the investment property.

Although we appreciate the fact that it was easier for you to complete the process of the sale in person, the costs that you incurred to travel to the other country are not incidental costs listed in the included cost base incidentals as per section 110-35 of the ITAA 1997. These expenses were incurred by you personally to enable you to physically attend the location of the property; they are not incidental to the purchase of the property or the CGT event occurring upon the property's sale.

Accordingly, the flights, accommodation, and car hire costs you incurred to undertake the sale of your investment property in the other country, cannot be included in the second element of the cost base of the property under section 110-25 of the ITAA 1997.