Private ruling: CGT
Published: May 2012
Ruling period: Year ended 30 June 2011. | Year ended 30 June 2012.
Date scheme commenced: 1 July 2010.

Ruling: Questions and answers: | Can you include restoration and maintenance costs in the calculation of your cost base for Capital Gains Taxation purposes? | Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20. | Income Tax Assessment Act 1997 Section 110-25.

Reasons for decision: Summary: You make a capital gain or capital loss as a result of a capital gains tax (CGT) event (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997). The most common event, CGT event A1, happens if you dispose of an asset to someone else. CGT event A1 happened when you sold your investment property. You make a capital gain if the capital proceeds from the sale are more than the assets cost base. You make a capital loss if the capital proceeds are less than the assets reduced cost base. Capital proceeds is the term used to describe the amount of money that you receive as a result of a CGT event occurring. Therefore your capital proceeds is the amount of money that you received as a result of the sale of your investment property. The assessable portion of any capital gain you make is included in the calculation of your taxable income in the year in which a property is sold. Where an asset is purchased as joint tenants any capital gain or loss will be shared equally. | Detailed Reasoning - The Cost Base: The cost base consists of five elements (section 110-25 of the ITAA 1997). These elements are added together to calculate the cost base. Briefly these are: · Element 1: Money paid or required to be paid to purchase the asset. · Element 2: Incidental costs of acquiring your interest in the asset, or costs in relation to the CGT event, e.g. stamp duty, legal fees, agents commission. · Element 3: You can include non-capital costs of ownership in the cost base of assets acquired after 20 August 1991 to the extent they are not deductible against other income (for example rental income). These can include rates and land tax, costs to maintain, repair or insure that asset. These costs cannot be included when calculating a capital loss. · Element 4: Capital expenditure you incur to increase or preserve the value of the asset, or relates to installing or moving the asset. · Element 5: Capital expenditure you incur to preserve or defend your title or right to the asset. As you have owned the property for more than twelve months, any capital gain made on its sale is a discount capital gain and may be reduced by 50 percent when calculating the net capital gain (sections 115-25 and 115-30 of the ITAA 1997). In your case your cost base can be calculated using the following amounts: · Element 1 will include purchases expenses of $X. · Element 2 will include sale expenses of $Z. · Element 3 will include all non-capital costs of ownership as you acquired the CGT asset after 20 August 1991, and are not otherwise deductible i.e. the property has not been used for income producing purposes, as shown in the table below. · Element 4 will include capital expenditure you have incurred to increase or preserve the value of the asset, or relates to installing or moving the asset, as shown in the table below. You do not have any costs to be included under element 5. The commissioner accepts your calculation for the items you provided a cost and an amount of $Y for tools. The following advice is provided on who to calculate the contribution to cost base of travel and depreciation of equipment you used on the property. | Detailed Reasoning - Travel costs: ATO Interpretive Decision ID 2007/67 explains that the travel and accommodation costs associated with maintenance and renovations can be included under element 3, cost of owning an asset. For example, travel and accommodation costs will be costs of owning the asset where the carrying out of the repairs on the asset is the sole or main purpose of the travel and accommodation. If carrying out maintenance was incidental to another private purpose (such as a holiday), only those travel expenses directly attributable to the ownership of the property can be included. The amount of the claim for use of your own vehicle for travel to and from the property can be established by apportioning the actual costs of the motor vehicle for the year, on the basis of the ratio of kilometres travelled in connection to the property to that total kilometres travelled in the respective year. | Detailed Reasoning - Depreciation: You can include in the cost base of the property an amount to cover the decline in value of your depreciating assets used to maintain or improve the property. The decline in value can be calculated using either the diminishing value or prime cost methods as described in the enclosed Guide to depreciating assets - note you cannot use the other methods described as you are not actually claiming a deduction for the decline in value but assigning a cost of using the equipment to the cost base of the property | Detailed Reasoning - CGT Discount method: A person can use the discount method to calculate your capital gain if: · they are an individual · the CGT event happened to an asset owned after 21 September 1999 · they owned the asset for 12 months, and · the cost base of the asset was not indexed. Please note that any capital gain or capital loss made when the property is disposed of is split between the individuals according to their legal interest in the property. The discount method means that for an individual only 50% of the capital gain that is made will be included in your assessable income. | Detailed Reasoning - Sale of the property: If you make a capital gain on the sale of your property, there are no provisions in the ITAA 1997 that give the Commissioner discretion to disregard the capital gain in your instance. Since you have owned the property for more than 12 months, if you make a capital gain when selling your ownership interest in the property, it can be reduced by applying the discount method.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You and your spouse jointly purchased a rural property post 1985. | On this property was a house. | Your intention was restore the building and its surrounds and for it to serve as a retirement nest egg upon subsequent resale. | There has been no rental or any other income from the property. | During your ownership, extensive restoration was undertaken on the house and out-buildings, including landscaping some of the land. Sheep were used to control weeds on the remainder of the property. | You acquired equipment which was used solely for use on the property. | None of the motorised equipment has been sold with, or left on the property. | A vehicle was sold separately. | The majority of costs can be attributed to materials and labour relating to trades people. | However you recognise instances of smaller jobs undertaken by you and your spouse in accordance with the availability of time and funds. | You said the number of trips to the property was 6 trips per year. The number would be more in summer as more watering of garden etc would be required in the warmer months and less in the colder months. | You have supplied documentation categorising the expenditure, you have denoted some items which you have been unable to calculate the amounts for. You are also able to supply source documentation upon request.