Private ruling: Capital gains tax - cost base of dwelling
Published: June 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are all the costs you incurred during your ownership period of your dwelling included in the cost base? | A1: No.

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. After 20 September 1985, you acquired an interest in a dwelling for $X. You resided in the dwelling as your main residence from for approximately 12 months. The dwelling was rented out after 21 August 1991, for a period of approximately two years. You did not choose the dwelling to continue to be your main residence after you moved out. The dwelling was disposed of late last year for $X. You have not claimed some costs you incurred as a deduction during the period the dwelling was rented out. You have calculated that the dwelling was used for private purposes X days and income producing purposes for X days. You have calculated your expenses incurred when the dwelling was used as your main residence, excluding a specified cost to be $X. You have calculated your expenses incurred when the dwelling was used for income producing purposes to be $X. You have calculated by apportioning your expenses for the specified item making the total costs of the income producing period $X. You have calculated that you have made a capital loss of $X on the disposal of the dwelling.

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 110-55

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. You make a capital gain or a capital loss as a result of a capital gains tax (CGT) happening to a CGT asset. The most common CGT event is a CGT event A1 which occurs when dispose of a CGT asset. The time of the event is when you enter into the contract for its disposal or if there is no contract when the change of ownership occurs. CGT event A1 occurred when you disposed of your interest in the dwelling. You make a capital gain if your capital proceeds from the disposal of your CGT asset are greater than your cost base. You make a capital loss if your reduced cost base of your CGT asset is greater than the proceeds. Capital proceeds is the term used to describe the amount of money or the value of any property you received or are entitled to receive as a result of a CGT event happening to a CGT asset that you own. | Detailed Reasoning - Cost base: The cost base of a CGT asset is generally the cost of the asset when you acquired 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 CGT asset. The cost base of a CGT asset is made up of five elements: 1. money or property given for the asset 2. incidental costs of acquiring the CGT asset or that relate to the CGT event, such as agent's commissions, costs of transfer, stamp duty, costs of adverting or marketing, costs of conveyancing and borrowing expenses - loan application fees and mortgage discharge fees. You do not include costs if you: · have claimed a tax deduction for them in any year · omitted to claim a deduction but can still claim because the period for amending the relevant income assessment has not expired 3. costs of owning the asset, such as rates, land taxes, repairs and insurance premiums Non- deductible interest borrowings to finance a loan used to acquire a CGT asset and on loans used to finance capital expenditure you incurred to increase an asset's value are also third element costs. You do not include costs if you: · have claimed a tax deduction for them in any year · omitted to claim a deduction but can still claim because the period for amending the relevant income assessment has not expired You cannot use these costs to work out a capital loss. 4. capital costs to increase or preserve the value of your asset or to install or move it, for example costs incurred in applying for zoning changes 5. capital costs of preserving or defending your ownership of or rights to your asset. | Detailed Reasoning - Elements of the reduced cost base: The reduced cost base of a CGT asset has the same five elements as the cost base except for the third element: 1. money or property given for the asset 2. incidental costs of acquiring the CGT asset or that relate to the CGT event 3. balancing adjustment amount - any amount that is assessable because of a balancing adjustment for the asset or that would be assessable if certain balancing adjustment relief were not available. 4. capital costs to increase or preserve the value of your asset or install or move it 5. capital costs of preserving or defending your title or rights to your asset. The reduced cost base does not include any costs you have incurred for which have claimed a tax deduction or have omitted to claim, but can still claim, a deduction because the period for amending the relevant income tax assessment has not expired. In your case, you have made a capital loss on the disposal of your interest in the dwelling so the third element costs you have incurred cannot be included in your reduced cost base. The real estate fees, commission and conveyancing and stamp duty costs you incurred are included under the second element of your reduced cost base. For further information please see the enclosed fact sheet - What is the cost base? Further information is also available on our website - www.ato.gov.au.