Private ruling: Capital gains tax
Published: February 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Questions and Answers | 1. Do travel expenses incurred in the building, maintenance and landscaping of your holiday home form part of the cost base when determining a capital gain on the sale of your holiday home? | Yes | 2. Can you use the cents per kilometre method to calculate your travel expenses as part of the cost base? | 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. You bought a vacant block of land after 20 September 1985 in your name. You built a holiday home on the block of land. The shell of the home was built by a building construction company. You and your spouse completed the rest of the home. You and your spouse then built a shed, verandah and patio. You visited the holiday home every fortnight for maintenance and landscaping purposes. You and your spouse worked all day, taking a break for lunch. Sometimes you and your spouse would stay the night, but often you both returned home on the same day. No other family members used to accompany you and your spouse. You incurred travelling expenses for the building/maintenance/landscaping of the holiday home. You travelled a minimum of X kilometres per annum to build the holiday home and for building, maintenance and landscaping purposes during your ownership period. You sold the holiday home in the 2010-11 income year and made a gain.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-5. | Income Tax Assessment Act 1997 Section 102-20. | Income Tax Assessment Act 1997 Section 104-10. | Income Tax Assessment Act 1997 Section 108-55 | Income Tax Assessment Act 1997 Section 110-25 | Income Tax Assessment Act 1997 Subsection 110-25(4). | Income Tax Assessment Act 1997 Subsection 110-25(5).

Reasons for decision: Detailed Reasoning - Cost base: Section 110-25 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the cost base of a capital gains tax (CGT) asset consists of 5 elements. Your holiday home is a CGT asset. The relevant elements in this case are the third and fourth elements. | Detailed Reasoning - Third element: The third element of the cost base of an asset acquired after 20 August 1991 includes the non-capital costs of ownership of the asset which are not deductible. For costs to fall within the third element of the cost base, the costs incurred must be directly related to the ownership of the asset. Travel costs incurred to carry out maintenance on a property will be directly related to the ownership of that property if the performance of the maintenance was the main purpose for undertaking the travel. In your case you visited your holiday home every fortnight for maintenance and landscaping purposes. You and your spouse worked all day, taking a break for lunch. Sometimes you and your spouse would stay the night, but often you both returned on the same day. As the main purpose of your travel was to carry out maintenance and landscaping work, your travel costs can be included in the third element of the cost base. | Detailed Reasoning - Fourth element: The fourth element of the cost base relates to capital expenditure incurred to increase the value of an asset. In this case the relevant asset was the block of land you purchased in 2001. As the land was purchased after 20 September 1985, the fixture attached to the land (your holiday home) was considered to be part of the same asset. In your case, the initial structure of your holiday home was carried out by a building construction company. After that you and your spouse travelled to the holiday home to complete the construction. You both then built a shed, varandah and patio. These items are considered to be capital expenditure as they increased the value of the land. You have indicated that the sole purpose of the travel expenditure was in connection with the construction of the holiday home, shed, verandah and patio and thus the travel expenses form part of the fourth element of the cost base. | Detailed Reasoning - Cents per kilometre method: You may calculate your travel expenses to be included in your cost base by using the cents per kilometre 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.