Private ruling: Capital gains tax - disposal of investment property - cost base
Published: January 2014
Ruling period: 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Can you include your medical costs you incurred in renovating your investment property 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 and your spouse purchased an investment property (the property). During a period the property was vacant and advertised in the rental market through a real estate agency. During the period the property was vacant you and your spouse cleaned and painted it. You and your spouse obtained a security gate to improve the side fence security of the property. During this time an accident happened to you. You were rushed to the emergency department of a public hospital which resulted in you having an emergency operation. You were unable to work for a specified period. You incurred a total of a specified amount in medical costs. The investment property was sold in December 2013. You have provided 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 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 110-25 | Income Tax Assessment Act 1997 Section 110-45

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 capital gains (CGT) event is CGT event A1, which occurs when you 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 a change of ownership occurs. CGT event A1 occurred when you and your husband disposed of the property. | Detailed Reasoning - Cost base: For most CGT events, you need the cost base of the CGT asset to work out whether or not you have made a capital gain. If you have made a capital loss, you need the reduced cost base of the CGT asset for your calculations. The cost base of a CGT asset is made up of five elements: 1. The money paid (or required to be paid) for the asset or the market value of property given (or required to be given) to acquire the asset are included in the first element. 2. Incidental costs of acquiring the CGT asset or that relate to the CGT event. Below are some of the incidental costs you may have incurred in acquiring the asset or in relation to the CGT event that happens to it, including its disposal. They are: · remuneration for services of an auctioneer, accountant, broker, agent, consultant or legal advisor · costs of transfer · stamp duty or similar duty · costs of advertising or marketing (but not entertainment) to find a seller or buyer · costs relating to the making of any valuation or apportionment to determine your capital gain or capital loss · valuation or apportionment to determine your capital gain or capital loss o search fees relating to an asset (such as fees to check land titles and similar fees) o the cost of a conveyancing kit (or a similar cost), and o borrowing expenses (such as loan application fees and mortgage discharge fees). You do not include costs if you: o have claimed a tax deduction for them in any year, or o omitted to claim a deduction but can still claim it because the period for amending the relevant income tax assessment has not expired. 3. Costs of owning the asset include rates, land taxes, repairs and insurance premiums. Non-deductible interest on borrowings to finance a loan used to acquire a CGT asset and on loans used to finance capital expenditure you incur 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, or · omitted to claim a deduction but can still claim it because the period for amending the relevant income tax assessment has not expired. 4. Capital costs to increase or preserved the value of your asset or to install or move it, for example, costs incurred in applying (successfully or unsuccessfully) for zoning changes. It also includes costs you incurred that relate to installing or removing an asset. 5. Capital costs of preserving or defending your ownership of or right to your asset. When a CGT event happens to a CGT asset and you haven't made a capital gain, you need the asset's reduced cost base to work our whether you have made a capital loss. You can only use a capital loss to reduce a capital gain - you cannot use it to reduce other income. The reduced cost base of a CGT asset has the same five elements as the cost base listed above, except for the third element. We acknowledge that your injuries were incurred whilst assisting your spouse at your investment property. However, the medical costs you incurred cannot be included in the cost base as they do not come under any of the five elements of the cost base as listed above. Therefore, you cannot include these costs in the cost base. You can use the discount method to calculate your capital gain as you meet all the relevant criteria. The discount percentage is 50% for individuals.