ATO ID 2003/361: Capital gains tax: cost base - consultant's fees
Date of decision: 6 May 2003
Year of income: Year ended 30 June 2002
Business line: Public Groups and International

Issue
Will the fees paid by a taxpayer to a consultant to find and recommend a suitable rental property which is later purchased by the taxpayer form part of the second element of the cost base of the property under subsection 110-25(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. The fees paid by a taxpayer to a consultant to find and recommend a suitable rental property which is later purchased by the taxpayer will form part of the second element of the cost base of the property under subsection 110-25(3) of the ITAA 1997. The consultant's fees are considered to be incidental costs incurred, to acquire the rental property, under subsections 110-35(1) and 110-35(2) of the ITAA 1997.

Facts
The taxpayer engaged a consultant to find a suitable rental property in the 1999-2000 income year and incurred consultancy fees. Based on the consultant's recommendation, the taxpayer purchased the rental property a few months later. The taxpayer disposed of the rental property in the 2001-02 income year and made a capital gain. The taxpayer included the consultant's fees paid as part of the cost base of the rental property.

Reasons for decision
Summary: The second element of the cost base of a CGT asset includes the incidental costs that the taxpayer incurs in acquiring the asset or which relate to a CGT event that happens in relation to the asset: subsections 110-25(3) and 110-35(1) of the ITAA 1997. Incidental costs that can be included in the cost base of a CGT asset are set out in section 110-35 of the ITAA 1997. Subsection 110-35(2) of the ITAA 1997 lists remuneration for the services of a consultant as an incidental cost. As the taxpayer has incurred the consultant's fees in relation to the acquisition of the rental property, these fees have been incurred to acquire the CGT asset and will form part of the second element of the cost base of the rental property in accordance with subsection 110-25(3) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 110-25 subsection 110-25(3) section 110-35 subsection 110-35(1) subsection 110-35(2)
Subject references: Capital gains tax CGT assets CGT cost base