Private ruling: CGT cost base
Published: July 2011
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2009

Ruling: Q1: Is the payment of a settlement rebate treated as a reduction in the cost base at the time of selling the property? | A1: 

Relevant facts and circumstances: You purchased a residential property. Your contract of purchase had special conditions inserted. Under the special conditions in the contract of purchase, a tenancy lease agreement was created between you and the vendor as a term of the contract of purchase. Under the special conditions, the vendor sells you land with a dwelling erected upon it for the purpose of a display home to be used during a display period specified by the vendor which is reflected on the tenancy lease agreement. Under the special conditions, at the time of settlement the vendor paid you a "settlement rebate" subject to the settlement of the property. A breach of the lease would result in a breach to the contract of sale. The lease took effect from the date of settlement to 18 months thereafter. The lease provided the vendor an option to extend the lease period by a further 6 lease terms of three months, if the vendor so chooses. The lease agreement indicates that the first 18 months is rent free to the vendor.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 110-25

Reasons for decision: Detailed Reasoning - Cost base: The cost base of an asset consists of five elements [section 110-25 of the Income Tax Assessment Act 1997 (ITAA 1997)]. The first element deals with the cost base associated with the acquisition of an asset. The first element of cost base and reduced cost base is the total of the money paid, or required to be paid, and the market value of property given, or required to be given, in respect of the acquisition of the asset (subsection 110-25(2) of the ITAA 1997). Under the first element of cost base calculation, the amount of money required to be paid upon the settlement of your contract was the price of purchase less the "settlement rebate" amount. The net amount is included in your cost base.

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