Private ruling: Capital gains tax
Date of advice: 7 December 2016
Published: May 2017
Ruling period: Year ending 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you elect to not claim a deduction for depreciation and capital works in relation to an investment property to instead reduce the cost base for capital gains tax purposes? | A1: No.

Relevant facts and circumstances: You own an investment property. In 20XX you claimed a depreciation expense for your investment property per the BMT Depreciation schedule.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 110-A | Income Tax Assessment Act 1997 Subsection 110-45(1B)

Reasons for decision: Summary: A capital gain is made on the disposal of a capital gains tax (CGT) asset when the proceeds received from the sale are more than the cost base of the asset. To determine the extent of any assessable gain, it is necessary to determine the cost base of the asset. Subdivision 110-A of the Income Tax Assessment Act 1997 (ITAA 1997) specifies amounts that can be included in the cost base for an asset and amounts that do not form part of the cost base. Subsection 110-45(1B) of the ITAA 1997 details that expenditure does not form part of the second or third element of the cost base to the extent that you have or can deduct it. In your case, you want to make a choice as to whether or not you will claim depreciation as a deduction from your rental properties in future years, to instead apply this expenditure to the property's cost base. There is no election available. Amounts in relation to the asset's cost that are deductible (depreciation and capital works) are required to be reduced from the cost base of your investment property for CGT purposes.