Ask Ban Tacs Question
Facts.
I acquired an investment property in 1987 for $82,700.
The purchase was financed virtually 100% from various loans.
The property was a rundown dwelling house in poor condition and as a result had a poor rental return, which did not cover the cost of the finance.
I obtained some negative gearing benefits during the course of ownership but held on to the property basically to make a capital profit.
The property was sold in 2010 for $350,000 as a result consent orders made in the Family Court as part of the settlement with my ex-wife.
The property was at all times registered in my sole name for tax purposes, but it was in effect a matrimonial asset that I had acquired during the course of my marriage and held in trust for the benefit of myself and my ex-wife.
The Family Court orders directed that this property, along with some other properties, was to be sold by me in order to pay a large cash settlement to my ex-wife. The terms of the settlement required me to accept total liability for any capital gains tax liability.
I have very little in the way of records concerning any payments made for the maintenance of the property etc. during the course of its ownership.
I have no records concerning any payments of a capital nature made in respect of the property.
The ATO has allowed an estimated holding and sale cost figure of $35,008 (based on their 10% of the sale price rule) giving me a total cost base of $117,708.
The ATO has assessed my gross capital gain as $232,372 and applied a 50% discount for "eligible transactions", giving me a net taxable capital gain of $116,186.
I have no idea what my actual holding costs were or what items I can include in this category, but it seemed to me that this figure of $35,008 was low and I therefore objected to the assessment.
The ATO has served notice that I am obliged to provide proof to substantiate my objection otherwise they will proceed and make their decision without it, which no doubt will simply be to dismiss my objection.
Questions.
1. Given my lack of records, is there any way available for me to contest the calculations arrived at by the ATO?
2. In particular, in the absence of specific records, is there any way to contest the arbitrary figure of 10% that the ATO has allowed me for holding and sale costs?
3. Are there any other matters that I can rely upon or use to support my objection to this assessment or to otherwise contest the assessment?
Answer
Because you purchased the property before 20th August 1991 you are not entitled to use section 110-25(4) to increase your cost base by any holding costs. This just leaves you with capital costs which in most circumstances would just be the stamp duty and legals on purchase and the real estate agent fees on sale plus any improvements you made to the property that you didn’t claim a tax deduction for. I assume you did your own legals. Also consider if you have incurred any costs in protecting the title of the property. If you want legalistive backing for these claims refer sections 110-25 http://law.ato.gov.au/atolaw/print.htm?DocID=PAC%2F19970038%2F110-25&PiT=99991231235958&Life=10010101000001-99991231235959 and 110-35 http://law.ato.gov.au/atolaw/print.htm?DocID=PAC%2F19970038%2F110-35&PiT=99991231235958&Life=10010101000001-99991231235959
You should be able to work out the stamp duty you paid on purchase from the state revenue web site and remember the name of the real estate agent who can give you a list of your selling costs.
Did you get a building & pest inspection?
Did you do any improvements to the place that were not otherwise claimed as a tax deduction? If so you could ask the ATO if they would accept a QS estimate of the cost to do these.
When you consider that you have probably claimed a tax deduction (and therefore not be entitled to increase the cost base by those amounts) for all those things that you are concerned you are missing out on, there is not must you can actually use and their 10% may be quite generous, certainly more than the stamp duty on purchase and the real estate agent fees to sell, which at the moment seem to be the only things that qualify. If you think of other expenditure that has not been claimed as a tax deduction and are not sure of whether it should be included feel free to send me an email.
