Couple of tricky tax questions.

Hi Folks,
Was wondering if any of the Tax guys out there can provide any insight into a couple of tricky tax questions I have.

1. Marketing costs for sale. I know these are normally capital in nature and included in the cost base for CGT calc. However, in this case we failed to sell and we will keep the property. Given these costs are sunk and we will never get a return from the spend, are these costs now deductible in full?

2. Architect and town planner costs to obtain planning permission for a rear extension to the property. We won't be proceeding with this redevelopment now. Are these fees deductible now, or perhaps when the permit expires? again there will be no benefit obtained from these sunk costs.

If it matters, the property was tenanted throughout.

Happy to get in touch with a recommended tax accountant if someone can recommend one.

Cheers
Justin
 
Don't see how either could be deductible under s8-1 as don't relate to income production. Possibly capital costs on sale.
 
Don't see how either could be deductible under s8-1 as don't relate to income production. Possibly capital costs on sale.

Yes that's what I keep reading. On the other hand I can't see how costs that have nothing to do with the purchase or successful sale of the property and have added no value to the property can be capital in nature!

Better keep googling til I find an answer I like, but sounds like it prob won't happen :(
 
Possibly black hole expenditure on both accounts.

They are capital costs, but they might not even be included in the cost base of the property !

1) May not form part of second element of cost because it is not incidental to acquisition or disposal of the asset.

Question is whether "incidental to disposal" includes a failed disposal and the exercise abandoned.

The Commissioner may allow these to be included in the second element if you persist in trying to sell.

i.e. a "continuum of events" resulting in an ultimate disposal. A pragmatic approach used by the Commissioner in TR 1999/19.

2) Fourth element of cost includes amounts for the purpose (or expected effect) of preserving or enhancing the value of the CGT asset.

Again, the question is whether costs of planning an extension that did not proceed are costs incurred to enhance or preserve given that the extension did not proceed.

I like the phrase "or expected effect" in s.110-25(5)(a). However, it replaces the old requirement that the increase in value was reflected in the selling price. In other words an improvement was effected and is still evident.

So there is some doubt in your situation where an improvement is not implemented.

If you actually sold the property with planning permission for an extension you could argue that this was an enhancement to the value. However, you did not sell and if you wait until the permit expires before selling then it could be a problem.

Specific advice is required.
 
I'm with Rob here. There also may be an income tax / CGT / GST issue if matters do proceed if your intention is to build and sell and generate income from a sale rather than building to generate rent etc long term.

All good reasons to seek personal advice from someone experienced in property.
 
Possibly black hole expenditure on both accounts.

They are capital costs, but they might not even be included in the cost base of the property !

1) May not form part of second element of cost because it is not incidental to acquisition or disposal of the asset.

Question is whether "incidental to disposal" includes a failed disposal and the exercise abandoned.

The Commissioner may allow these to be included in the second element if you persist in trying to sell.

i.e. a "continuum of events" resulting in an ultimate disposal. A pragmatic approach used by the Commissioner in TR 1999/19.

2) Fourth element of cost includes amounts for the purpose (or expected effect) of preserving or enhancing the value of the CGT asset.

Again, the question is whether costs of planning an extension that did not proceed are costs incurred to enhance or preserve given that the extension did not proceed.

I like the phrase "or expected effect" in s.110-25(5)(a). However, it replaces the old requirement that the increase in value was reflected in the selling price. In other words an improvement was effected and is still evident.

So there is some doubt in your situation where an improvement is not implemented.

If you actually sold the property with planning permission for an extension you could argue that this was an enhancement to the value. However, you did not sell and if you wait until the permit expires before selling then it could be a problem.

Specific advice is required.

Yes, thanks Rob I think i'll seek a private ruling.

Cheers

Justin.
 
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