Private ruling: Cost base elements
Published: June 2012
Ruling period: Year ended 30 June 2008 | Year ended 30 June 2009
Date scheme commenced: 1 July 2007

Ruling: Q1: Are you entitled to include the portion of the airfares associated with the construction of your investment properties as part of the cost base? | A1: Yes.

Relevant facts and circumstances: Until 2010 you spent time overseas During that time you were in the process of building multiple properties in Australia. You hired a project manager to manage the project on your behalf. However, to oversee it and ensure that your instructions were fulfilled you came back to Australia twice. You did not come back to Australia following your last trip until you returned permanently. You travelled alone. You undertook various activities whilst in Australia, including: organising materials, organising installation of materials and communicating with the builder.

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

Reasons for decision: Summary: A residential rental property is a CGT asset. Section 110-25 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the cost base of a CGT asset consists of five elements. The fourth element of the cost base is capital expenditure incurred to increase or preserve the assets value (paragraph 110-25(5)(a) of the ITAA 1997). Included in the fourth element is the cost of travel to oversee construction. Therefore, the portion of your airfares that relates to the construction of the investment properties can be included in the fourth element of the cost base. | Detailed Reasoning - Additional information: If a portion of the expenses incurred for airfares is not related to the construction of the rental properties, it cannot be included as part of the cost base. If any part of your travel was for a private purpose, the expense incurred for the air fares should be apportioned.

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.