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Issue 154, 20 July 2007
Welcome, to the latest issue of Thomson's Tax & Accounting Insight, your free news service for tax and accounting professionals.
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Articles in this edition include:
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Apportionment of capital proceeds on
sale of rental property
Q. If my client sells a post-CGT rental property (being a house on a
block of land), does she have to apportion the sale proceeds between
the land and the building?
A. The answer is no. This is because the land and the house are not treated
as separate assets in these circumstances, even though your client
may have claimed, or be entitled to claim, building write-off
deductions (under Division 43 of ITAA 1997) in respect of the
house.
Section 108-55(1) of ITAA 1997 provides that a building or structure on land acquired
on or after 20 September 1985 will only be taken to be a separate
CGT asset from the land if the 'depreciating asset' balancing
adjustment provisions (in Subdivision 40-D of ITAA 1997) or the
'research and development' balancing adjustment provisions
(subsections 73B, 73BF or 73BM of ITAA 1936) apply to the building
or structure. Importantly, these balancing adjustment provisions do
not include the Division 43 building write-off (see also Note 2 to
section 40-30(3) of ITAA 1997).
Nevertheless, the cost base of the rental property, being the relevant CGT asset,
will need to be reduced by the Division 43 building write-off
deductions if the property was acquired after 7.30 pm on 13 May 1997
(or construction of the house commenced after 30 June 1999 where the
land was acquired before 7.30 pm on 13 May 1997).
On the other hand, under section 108-55(2), if the land was acquired before 20 September 1985 (i.e.
pre-CGT) and the house was constructed on it on or after that date,
the house would be a separate asset from the land and an
apportionment of the sale proceeds would be required if the house
was subject to CGT. See also Taxation Determination TD 98/24.
This article appeared recently in Thomson
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actual scenarios confronted in practice to help you understand how
developments affect your client's tax position. New Q & As are
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into account tax changes that impact on the issues raised. It
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actual tax issues facing tax advisers in practice.
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Taxation Ombudsman's activities
in 2006: report released
The Commonwealth Ombudsman has released a report
of the activities of the Taxation Ombudsman during the 12
months ended 31 December 2006. The report notes the
following:
- In 2006, the Ombudsman received 1,415 complaints about the Tax Office,
compared with 1,548 in 2005. The report says this suggests a trend
in the last few years of a levelling off in Tax Office complaint
numbers in contrast to the period comprising the introduction of
the new tax system and the difficulties over the tax treatment of
mass-marketed investment schemes.
- The complaints covered a range of areas and Tax Office activities,
including debt recovery, superannuation co-contributions, the
superannuation surcharge, lodgment and processing, and interest
and penalty remission decisions.
This article appeared in Thomson's daily Latest
Tax News (Tuesday 17 July). With tax fast-moving and ever
changing-EVERY DAY, practitioners rely on Thomson's daily
Latest Tax News for quick, accurate, comprehensive
information-no compromises. When you need to know what's new
in tax and related news every day, there's only one place to
look - LTN. To find out more, click
here.
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Main residence exemption -
burden of proof
In a recent decision, the Administrative
Appeals Tribunal (AAT) held that a taxpayer failed to prove that a
property they had constructed and used was their main residence
and therefore eligible to concessional tax treatment on sale.
Broadly, any capital gain or loss from a
dwelling is ignored for capital gains tax (CGT) purposes where it
can be proven that the dwelling was the taxpayer's main
residence throughout the ownership period, and was not used for an
income producing purpose. If the property was used for an income
producing purpose during part of that period, only part of the
capital gain or loss is ignored.
The taxpayer purchased a vacant block of land
intending to build a house. After the house was built, the
taxpayer sold the land. Three months prior to the settlement, the
taxpayer moved into the house, claiming it as their residence.
Upon selling the property, the taxpayer did not disclose the
capital gain, relying on the main residence exemption. The
Commissioner subsequently assessed the taxpayer on the net capital
gain contending that the taxpayer failed to prove that the
property constructed was actually their main residence.
The Commissioner indicated that while
there is no set definition of 'main residence' some factors
lend themselves to provide guidance with respect to the definition
including:
- the length of time the taxpayer has lived at the residence;
- the connection of utility services to the residence;
- the address to which mail is directed; and
- the taxpayer's address on the electoral role.
The AAT agreed with
the Commissioner indicating that the taxpayers failed to prove
that the property was their main residence.
This article appeared in Thomson's Client
Alert Newsletter Service. Client Alert is a monthly
newsletter that promotes your business and develops your
client's awareness of upcoming tax issues. To find out more,
phone Thomson Customer Service on 1300 304 197 or click
here.
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