CGT treatment of travel costs

[Spiderman]

Hi forumites: Up to now I had assumed that travel costs to buy an IP were not deductible from income tax, but were taken into account for CGT purposes if you sold the property.

Now I'm not so sure.

My accountant has forwarded me an item from the October 2003 issue of 'Voice' (I assume it's an accountants journal).

It says:

'A taxpayer, who purchased a property after travelling interstate to inspect a number of properties, cannot include travel and accomodation costs as part of the cost base of the property.

s 110-25 of the ITAA 1997 provides that the cost base of a CGT asset cosists of five elements:

* acquisition costs
* incidental costs
* non-capital costs of ownership which are not deductible
* capital expenditure to increase the value of the asset
* capital expenditure to establish, preserve or defend title to the asset or a right over the asset.

Travel costs to find a suitable property to purchase are not considered to fall within any of the above.'

So it seems you can't claim travel costs anywhere.

I wonder if the answer would be different if you inspected only one property (though would that still be defined as 'a number'?)

Peter

[NormH]

Hi Spiderman,
it is a loaded question :). All costs involved in finding a property for a normal person are not claimable as a tax deduction, however all travel/accomodation after purchase for 'strata meetings, inspections etc' is a tax deduction.

But if you are carrying on a business, ie let us say you have 4 or more investment properties, you could argue that it is a business and hence the 'costs of finding new properties' should be claimable.

The area of where the ATO may view it as passive investment/hobby and a business is a grey area. If you have a 'structure setup that you are purchasing property into, ie Trust and you are employed by the trustee to go and look they can pay you expenses.

So sorry it ain't that cut and dried but hope this helps.

Please note I am not an accountant, nor a professional in the tax area, I am a long term property investor and that is the way I understand it to work.

There a many on this forum who will correct my mistakes :D

regards

Norman



Originally posted by Spiderman
Hi forumites: Up to now I had assumed that travel costs to buy an IP were not deductible from income tax, but were taken into account for CGT purposes if you sold the property.

Now I'm not so sure.

My accountant has forwarded me an item from the October 2003 issue of 'Voice' (I assume it's an accountants journal).

It says:

'A taxpayer, who purchased a property after travelling interstate to inspect a number of properties, cannot include travel and accomodation costs as part of the cost base of the property.

s 110-25 of the ITAA 1997 provides that the cost base of a CGT asset cosists of five elements:

* acquisition costs
* incidental costs
* non-capital costs of ownership which are not deductible
* capital expenditure to increase the value of the asset
* capital expenditure to establish, preserve or defend title to the asset or a right over the asset.

Travel costs to find a suitable property to purchase are not considered to fall within any of the above.'

So it seems you can't claim travel costs anywhere.

I wonder if the answer would be different if you inspected only one property (though would that still be defined as 'a number'?)

Peter

[geoffw]

I had always assumed that travel to a property were a part of the acquisition costs. And I had alos assumed that those costs also included travel costs locally where you were renovating- petrol etc for lots and lots of trips does mount up.

I've tried to find something on the ATO site- but of course, when you really need it, it's not there.

Dale?

(PS- I've been looking through the "Guide to Capital Gains Tax 2003" from ATO- http://www.ato.gov.au/individuals/content.asp?doc=/content/31570.htm&page=10#H4_6

The matter of travel to a property does not appear to be covered. But other capital expenditure does appear to be covered- ie, anything of a capital nature- say improvements- is deductible in determining the cost base.

It may just be a matter of interpretation.

HOWEVER

If you buy properties as a part of your business, you may be able to deduct those travel costs- in the year that they were incurred. This may especially be the case if your trust is acquiring the property.

(unless Dale tells me otherwise :D )

[DaleGG]

HI

It is a matter of interpretation, however, of late the tax office have swung to the idea of the travel not being a part of the capital costs of buying the property.

I tend to think that each situation though will need to be judged on its facts. For example, if I travel to Brisbane for a long weekend and spend all of that time looking for a property to buy - then, I guess understandably, the tax office says that the costs were not incurred in buying that property.

However, if find a property on the net and negotiate on that property subject to a visual inspection, then the travel to see that property will be specific and particular to that property and it should then form part of the costs of buying it for CGT purposes.

And, if you use a trust then the travl can be immeditaely tax deductoible under other rules of engagement.

Sorry guys, there is no clear cut answere here . . . just more confusion and doubt.

Dale

[see_change]

Dale

Could you elaborate on this point.

Originally posted by DaleGG
HI

And, if you use a trust then the travl can be immeditaely tax deductoible under other rules of engagement.

Dale

We have purchased all our properties in trusts , and I was under the impression that the travel costs were included in the Base cost, and we have done so , however as most of them were purchased in last financial year, it's not to late to change their allocation in our accounts.

See change

[DaleGG]

G'day!

The trust is able to pay the individuals to act on its behalf. The simplest way to do this if the trust to pay the airfares and to pay each individual a travelling allowance per night to cover their meals and accomodation - regardless of whther they spend that much or not.

This allowance is a tax deduction for the trust and is effectively tax free to the individuals.

Dale



Originally posted by see_change
Dale

Could you elaborate on this point.

We have purchased all our properties in trusts , and I was under the impression that the travel costs were included in the Base cost, and we have done so , however as most of them were purchased in last financial year, it's not to late to change their allocation in our accounts.

See change

[geoffw]

I guess that for many trusts, the benefit they get would not be immediate.

I have postively geared properties in my discretionary trust. But the depreciation is far greater than any profits. So any other items which are claimable against profit cannot be claimed in the current financial year. Those losses will presumably be carried forward against future years' profits, when those profits start to exceeed depreciation and other losses.

[duncan_m]

Originally posted by DaleGG
G'day!

The trust is able to pay the individuals to act on its behalf. The simplest way to do this if the trust to pay the airfares and to pay each individual a travelling allowance per night to cover their meals and accomodation - regardless of whther they spend that much or not.

This allowance is a tax deduction for the trust and is effectively tax free to the individuals.

Dale


Thanks for the insight Dale.. so even if the Trust didnt purchase a property.. the expense of sending someone up to inspect the place is immediately deductible?

Cheers, Duncan.

[DaleGG]

Hiya Duncan

Absolutely. In fact, even if the trust sends its people on a fact finding trip it should be immediately tax deductible.

Cheers

Dale


Originally posted by duncan_m
Thanks for the insight Dale.. so even if the Trust didnt purchase a property.. the expense of sending someone up to inspect the place is immediately deductible?

Cheers, Duncan.

[abcdiamond]

Dale

Reading this thread has been interesting. Some very useful points about using trusts. Its made me more interested in going down that path myself.

I've just ordering both your books, so I will be reading up on it better in the next week or so.

Regards

ABCD

[pete152]

Gidday,
This has me interested as well.
So the trust could claim all phone calls and internet charges with finding a property as well?
Thanks
peter

[DaleGG]

Hi

Yes, it could.

Dale

Gidday,
This has me interested as well.
So the trust could claim all phone calls and internet charges with finding a property as well?
Thanks
peter

[Thommo]

I had always assumed that travel to a property were a part of the acquisition costs.
PriceWaterhouseCoopers gives a catigorical NO to claiming travel etc before purchase. Discussed this week at an "education" session.
Also denied is travel from "home office" to "work". ATO has given warning of a crackdown on such items.

Thommo

[Aceyducey]

Also denied is travel from "home office" to "work".Thommo, can I still claim the 10m travel from my bedroom to my office?

Wear & tear on sandals, on the carpet & the like?

Cheers,

Aceyducey

[Thommo]

Thommo, can I still claim the 10m travel from my bedroom to my office?

Wear & tear on sandals, on the carpet & the like?

Cheers,

Aceyducey
Aren't sandals optional?

T

[Jas]

PriceWaterhouseCoopers gives a catigorical NO to claiming travel etc before purchase. Discussed this week at an "education" session.
Also denied is travel from "home office" to "work". ATO has given warning of a crackdown on such items.

Thommo

Depends on whether you are in the business of property or not. If you have set up a business, travel costs are part of it.

If you are just wandering around buying property occassiohally, no travel costs til you've bought it.

Jas

[NormH]

Thommo, it depends upon whether or not you are running a business
or not.

In your response to Geoff and his assumption of putting the travel into the capital cost of the property then I think Dale confirmed that.

But it is not as clear cut as PWC have make out. In most cases where people only have 1 or 2 properties then you are correct, but for people who are running a business then this is not correct. At what point/number of houses can you be deemed to be running business vis seen as a hobby/passive investment is the grey area.

However if you have a trust, and are purchasing your properties into the trust
and you are the trustee or there is an incorporated trustee and you are an employee of that trustee acting on behalf of that trustee then the travel costs are claimable by the trust and your costs can be reimbursed immediately out of the trust by the trustee.

I am reasonable sure of that as the Trustee is running business and has a
responsibility to the trust to invest monies upon its behalf. Hence all expenses are a business expense. - So just another reason to set up a legal structure to protect your assets and ensure you get to reclaim all your expenses.

The Homeoffice - work one is interesting as once again it becomes where and how you make the differentiation. I agree that your "self declared home office" to your normal place of work, generally is not a tax deduction. On the other hand travel from 1 place of employment to another is a tax deduction.
ie from your office job to the restaurant where you work as a kitchenhand. (I did it for 4 years) is a legitimate claim. So the Question is really how do you ensure in the ATO's eyes that your "home office" is a legitimate place to begin travel from.

I am sure accountants on this forum will jump in here and shoot me down but it would certainly help if you had a registered business address at your home and you ran a business from that location, ie Trustee company. You had legitimate deductions for the office ie rental of space, electricity accounts etc.

Norman

PriceWaterhouseCoopers gives a catigorical NO to claiming travel etc before purchase. Discussed this week at an "education" session.
Also denied is travel from "home office" to "work". ATO has given warning of a crackdown on such items.

Thommo

[Thommo]

Depends on whether you are in the business of property or not. If you have set up a business, travel costs are part of it.

If you are just wandering around buying property occassiohally, no travel costs til you've bought it.

Jas
True! But most individuals on this forum are "investors" and believe they should be able to offset inspection travel costs.

Pt 2 would apply to people in the business of property though. Having a "home office" does not mean all travel is deductable the moment you leave your driveway. Strictly speaking, salespeople can only claim ex's AFTER their first call in the morning and not after their last in the arvo. (Having a van I don't have to run a log book, but all those with sedans need to be aware) As I said, The word is out!

Thommo

[geoffw]

Aren't sandals optional?

TNot when you have kids