Private ruling: Capital gains tax - disposal of property - unable to reconstruct records
Published: October 2013
Ruling period: 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Do you need to reconstruct your records in relation to your country property for capital gains tax (CGT) purposes? | A1: Yes.

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 and your spouse purchased a rural residential building block (the block) for $X. The block was isolated which suited you and your spouse's needs. The block adjoined a lake and had been almost empty for several years. The court that the block was located in generally consisted of run down homes and vacant land. You and your spouse's plan was to clear the block and owner-build a small retirement home over a specified period. You and your spouse cleared the block and constructed several temporary buildings giving you secure storage and somewhere to reside while you built. You and your spouse constructed fences, had the services connected, house plans prepared and prepared to start to build. Everything progressed smoothly for approximately X years and then the lake filled up. A number of properties changed hands in the court and previously vacant lots were suddenly developed. A large dwelling which obstructed your view was constructed on the last remaining vacant block of land beside the block. This year you and your spouse disposed of the block to your neighbour. Included in the disposal price was all indoor and outside furniture, garden maintenance equipment, water tank etc. The new owner advised you that they were going bulldoze the block to make way for their new buildings, so it would not be possible for an estimator to assess the block in the condition it was when you and your spouse owned it. You and your spouse have retained only a couple of receipts for proof that work that was carried out was in accordance to the relevant authorities regulations. These receipts were passed to the new owners of the block. You and your spouse have attempted to estimate reasonable costs incurred from your banking records. Your accountant has advised you that you and your spoused are each liable for CGT of approximately $X. You have supplied a copy of documentation to support your application and this documentation is to be read with and forms part of your application for the purpose of this ruling.

Relevant legislative provisions: Income Tax Assessment Act 104-10 | Income Tax Assessment Act 121-10 | Income Tax Assessment Act 121-20

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. The most common CGT event is CGT event A1, this occurs when you dispose of a CGT asset. The time of the event is when you enter into the contract for the disposal or if there is not contract - when a change of ownership occurs. CGT event A1 occurred when you and your spouse disposed of the block. | Detailed Reasoning - Personal use assets: Personal use assets may include such items as boats, furniture, electrical goods and household items. and and buildings are not personal use assets. Any capital loss you make from a personal use asset is disregarded. If a CGT event happens to a personal use asset, you disregard any capital gain you make if you acquired the asset for $10,000 or less. In your case, you and your spouse disposed of a number of personal use assets, such as the indoor and outdoor furniture, so any capital gain or capital loss made on the disposal of these items are disregarded. Therefore, you and your spouse will need to apportion the proceeds received between the block and your personal use assets. | Detailed Reasoning - Capital proceeds: Generally, you make a capital gain if the capital proceeds from the disposal of a CGT asset are greater than the cost base of the asset. Capital proceeds are usually the amount of money you receive on the disposal of a CGT asset. | Detailed Reasoning - Cost base: The cost base of an asset consists 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 costs of transfer, stamp duty or remuneration for services of a real estate agent 3. costs of owning the asset, such as rates, land taxes and insurance premiums 4. capital costs to increase or preserve the value of your asset or to install or move it, such as costs you incurred that relate to installing or moving an asset 5. capital costs of preserving or defending your ownership of or rights to your asset. CGT Determination Number 60 provides that where an asset is constructed or created by an individual, no value can be attributed to that labour for inclusion in the cost base of the asset. In line with this principle, the value of you and your spouse's labour cannot be included in the cost base. | Detailed Reasoning - Record keeping: You must keep records of every act, transaction, event or circumstance that may be relevant to working out whether you have made a capital gain or capital loss from a CGT event. Your records will be acceptable for CGT purposes if they are in English and show: · the nature of the act, transaction, event or circumstance · the date it happened · who did the act or who were the parties to the transaction, and · how the act, transaction, event or circumstance is relevant to working out the capital gain or capital loss. If you do not have the original records we will accept duplicates, copies, or reconstructed valuations, receipts or other documentation related to any costs involved in purchasing, holding or disposing of your CGT asset. If you bought real estate, your solicitor or real estate agent may have copies of most of the records you need. You should be able to get copies if you ask for them. The main thing is to get as many details as possible so you can reconstruct your records. All expenses incurred can only be included in the cost base when adequate written evidence is available. We understand that you and your spouse have attempted to reconstruct your records. However, the Commissioner does not have discretion to waive the record keeping requirements.