Capital Gains Tax ATO Guide Wrong

[coastymike]

Well interesting day yesterday.

Client situation

PPOR turns to IP

IP rented out until sold

PPOR main residence absence provisions used for 6 years.

First confusion for client was whether the cost base was the market value on the date 6 years after they moved out i.e. the end of the 6 years after the maximum time allowed to use the absence provisions or the market value on date rented out. Confirmed with client that s 118-192 states that it is market value at 'income time'

Now next interaction was the apportionment of the capital gain. Example 71 in the ATO Capital Gains Tax Guide uses a denominator where the number of days was the total ownership period i.e. from beginning of acquisition to sale.

The bottom line is supposed to be 'ownership period' (section 118-195).

Ownership period is the period in which you have an ownership interest (which is why it is settlement to settlement) (section 118-125).

You are taken to have acquired the ownership interest at the 'income time' for its market value (section 118-192): 'You are taken to have *acquired the *dwelling or your *ownership interest at the income time for its *market value at that time.'

So the denominator should be time from first used to produce income to sale. Rang NTAA and discussed with them and they agreed ATO factsheet is wrong. Apparently 2012 prior are ok it is the 2013 factsheet which has an incorrect example

Heaven help us if the ATO can't even get their guides right.

 

[The Fence]

Interesting Coastymike,

Say for example:

Property purchased in 1997 and claimed as PPOR up until 2000 when first rented out.
Improvements made in 2002 for $125k (in dep report)
Rented out until sale date 2013.
No other PPOR claimed until 2007. (after 6yrs had passed).


So cap gains is calc'd on 2000-2013 =13 years minus 6 years = 7yrs ?


I take it the full amount of improvements is added to cost base (val @ yr 2000) minus any amounts claimed as depreciation ever since?

Then use sale price minus any selling costs as proceeds?

Would there be any other variables required in working out CGT on this example Coastymike?

Thanks in advance.

 

[Paul@PFI]

Mike - You only found one mistake ? ATO publications are riddled with them. Techies write something then some graphic designer makes it look standardised. Update the old one. Cut paste. Woops.

Case in point is taxpack and e-tax. For donkeys years until 2012 (Not in 2013) ATO ask a question of individual taxpayers. "Do you have a prior year capital loss which you have not previously claimed. To reduce a current year capital gain".

Basically this suggests that if you had a cap loss and didnt claim it way back when, then you can claim it now. Well that's just absurd. Why have carried forward CGT loss rules, Right ? You cant amend out of time. The Commissioner cant amend your return out of time and you cant include prior year matters in the present return. Fix a lot of issues if you could !

I had a client who would benefit from this "mistake" and sought the Commissioners view top avoid a issue of recklessness. I didnt mention taxpack etc. They said "no you cant claim a PY CGT loss in another tax period"...Told me "out of time to amend".....So I asked if I can rely on their mistake...Answer = Yes..Only if using e-tax or taxpack. Sent me a private ruling despite me not asking!! rec'd a call from a Snr ATO person who sheepishly suggested a major mistake but called it an "oversight".

2013 now asks about "unapplied CGT losses from a prior return".

Then ATO are just usually "vague"....case before Courts v Commissioner concerning unreported gambling revenue. Seems their website and publications made it fairly clear these wins arent income. They didnt mention exceptions. Yeah sure website isnt a ruling etc but its a very good place for guidance. Where does a publication start to become advice and guidance especially when signed by the Commissioner and given a "NAT" number ?