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My question has two parts, in relation to CGT on the sale of investment property.
a) from the 2018FY all owners of investment properties have been unable to claim traveling expenses related to annual inspections, or travel to carry out works at properties between tenants. I have kept detailed account of all such travel since the 2018FY – is the accumulative amount of all this travel able to be considered in my cost base for CGT purposes now I have sold a property ?
b) I have also kept detailed account of all sorts of other capital expenses I’ve incurred in Numismatic (coin & banknote investing) and self education in the property (prior to owning investment property) , equities & Numismatic areas, all these are expenses I’ve been unable to claim on an annual basis thru my returns.
Are these expenses accumulated since 2001 able to be offset against my CGT liabilities as I sell my 3 investment properties in this current & next fiscal years ?
I have been told that capital expenses are specific to each individual asset or asset class, therefore expenses incurred in Numismatic & Equities cannot be used to offset CGT in investment properties.
Answer
The idea of including travel cost that had not otherwise been claimed, in the cost base had some legs before the removal of travel costs as a tax deduction against rent. At the same time it was made clear that travel costs could not be included in the cost base.
Each asset has its own cost base that only includes expenses that are unique to it. But if you make a loss on one asset, providing it is not a collectable or personal use asset then you can use that loss to offset a capital gain on another asset. The trap is you have to trigger the CGT event ie sell the loss asset, before the end of the financial year you make the capital gain. Losses made on personal use assets and collectables cannot be offset against the capital gain on your house.
Coins etc are collectibles so even if you sell them at a loss the loss cannot be offset against the investment property gains. On the upside CGT does not apply to them if they cost you less than $500 to buy though sets are lumped together for that threshold. It is even more important to keep records to show that they did not cost you more than $500. I attach a spreadsheet that explains this in detail and can be copied and used for all your collectables.
I gather when you refer to equities you mean shares and units in publicly listed companies and trusts. Any losses on these made before the end of the financial year in which you sell an investment property can be offset against the gain on the investment property. The equities would have to be sold in that financial year to count, it must be a realised loss. I attach a spreadsheet that you can duplicate and tract each equity you hold. If you sell off only part of your holding you cannot just use average cost if you have bought them as more than one parcel. This spreadsheet allows you to record your transactions for each shareholding on a first in first out basis which is readily acceptable by the ATO and probably the most beneficial for you regarding the 50% CGT discount, if you did make a profit.
It is important that expenses included in the cost base relate to that particular asset. For example the education costs before you buy an investment property would be at a point too soon. Here is a link to the precedent case on this https://www.bantacs.com.au/Jblog/petrovics-case-claiming-property-investment-course-fees/ though it is nearly 20 years old now so not relevant regarding motor vehicle expenses.
When it comes to collectables you are not allowed to increase the cost base by any holding costs such as research, advice, interest, insurance etc.
I also include a spreadsheet that will help you work out the cost base of your investment properties. The instructions in these spreadsheets will provide you with clarity on the finer points of the cost bases.
