Author: MaxFactorAU(Devotee)Registered Tax Professional 7 Dec 2022
Hello,
If a taxpayer purchased a rental property in 1994 and claimed Div 43 capital works in their tax returns since 1994 till 2022. The property was disposed in 2022.
QC 67993 states:
"In working out a capital gain for property that you used to produce assessable income (such as a rental property or business premises), you may need to exclude from the cost base and reduced cost base capital works deductions you have claimed in any income year (or omitted to claim, but can still claim, because the period for amending the relevant income tax assessment has not expired).
<...>
You must exclude from the cost base of a CGT asset (including a building, structure or other capital improvement to land that is treated as a separate asset for CGT purposes) the amount of capital works deductions you claimed (or omitted to but can still claim because the period for amending the relevant income tax assessment has not expired) for the asset if you acquired the asset:
after 7.30pm AEST on 13 May 1997"
Considering QC67993, TD 2005/47 and PS LA 2006/1 (GA), the question is:
On disposal of the property in 2022, do we reduce the cost base by claimed Div 43 capital works before 13 May 1997 or we do not?
Thank you.
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5 replies
Author: MaxFactorAU(Devotee)Registered Tax Professional 2 Feb 2023
Hello everyone,
I have received reply from ATO:
In short, you do not have to reduce cost base by Div 43 of neither initial building nor subsequent capital works, if asset was acquired before 13 May 1997 AND there were any capital works expenses incurred before 30 June 1999.
Explanation:
QC 66023 and ITAA1997 states that:
Capital works expenses you can claim as deductions against income cannot be included in either:
There are 2 exceptions to this rule:
- you acquired the asset before 7:30 pm (ACT time) on 13 May 1997 ****and**** incurred the capital works expense by 30 June 1999 โ see the Guide to capital gains tax for more information about this situation
Going back to QC 67993 it says:
"You must exclude from the cost base of a CGT asset <...> the amount of capital works deductions you claimed <...> for the asset if you acquired the asset:
- after 7.30pm AEST on 13 May 1997, OR
- before that time and the expenditure that gave rise to the capital works deductions was incurred after 30 June 1999."
It matches QC 66023 and provisions of ITAA1997.
ATO representative agreed that it is poorly worded on the website and said they would make some changes to the publication QC 67993 in the nearest future to make it more clear.
