ATO Interpretative Decision

ATO ID 2003/469 (Withdrawn)

Income Tax

• This ATO Interpretative Decision is withdrawn from the database because it contains a view in respect of a provision of the Income Tax Assessment Act 1997 that doesn't apply after the 2004-05 income year. Despite its withdrawal from the database, this ATO Interpretative Decision continues to be a precedential view in respect of decisions for income years up to, and including, the 2004-05 income year.
  Note: The principles contained in this ATO Interpretative Decision may be relevant to decisions in respect of later income years, where a replacement or rewritten provision is applied.
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Issue

Can the costs of obtaining council approval for subdivision form part of the fourth element of the cost base of land under subsection 110-25(5) of the Income Tax Assessment Act 1997 (ITAA 1997) if the subdivision has not been undertaken when the land is disposed of?

Decision

Yes. Even though the land was not subdivided, the costs of obtaining council approval can be included in the fourth element of its cost base under subsection 110-25(5) of the ITAA 1997 because the costs:

-

were incurred to enhance the value of the land, and

-

are reflected in its state or nature at the time it was disposed of.

Facts

The taxpayer acquired a property after 19 September 1985. The taxpayer applied to the council for approval to subdivide the land and, in doing so, incurred capital expenditure.

The council granted approval for the subdivision.

The taxpayer disposed of the land without subdividing it.

Reasons for Decision

The fourth element of the cost base of an asset includes capital expenditure that is incurred to increase its value providing that it is reflected in the state or nature of the asset at the time a CGT event happens (subsection 110-25(5) of the ITAA 1997).

The Macquarie Dictionary in its third edition says that the word 'state' refers to the 'condition' of a thing, 'as with respect to circumstances or attributes'. It can refer to a 'condition with respect to constitution, structure, form, phase or the like'. The word 'nature', in relation to a thing, refers according to the Macquarie Dictionary to the 'particular combination of qualities belonging to a thing by birth or constitution; [its] native or inherent character'; or [its] 'character, kind or sort'.

The costs incurred in obtaining council approval were incurred by the taxpayer to increase the value of the land - the taxpayer believed that a prospective purchaser might be prepared to pay more for land that they knew could be subdivided.

The taxpayer can show that the expenditure incurred in obtaining council approval to subdivide the land is reflected in its state or nature at the time it was disposed of because it is reflected in the attributes of the land, that is, council approval to subdivide has already been obtained.

Accordingly, the expenditure incurred in obtaining the council approval will be included in the fourth element of the taxpayer's cost base.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   subsection 110-25(5)
   section 110-55

Keywords
Capital gains tax
CGT assets
CGT cost base
CGT events

Business Line:  Losses and CGT Centre of Expertise

Date of publication:  20 June 2003

ISSN: 1445-2782