Third Element in spreadsheet and PPR aportionment

Question

Hi Julia,
I would like to get a clarification of a question that my accountant asked.
I have completed the BanTacs CGT calculator spreadsheet and all is fine. The concern she has is that with all the items of the Third Element( Costs of Ownership) included then in line 57 (Percentage of Time Not Covered by Main Residence Exemption) is also used to apportion the capital gain between the time living there and the time not.
The question is, can both of these be used in the calculation of the capital gain as per the spreadsheet.
Thanks for your help.

Regards
Peter

Answer

Ah the trap here is applying logics to the issue, not the law 
Below is section 118-185 which explains how to calculate the capital gain when the main residence exemption only applies for part of the time. As you can see it asks you to calculate the capital gain first then apportion. Section 110-25(4) (third element cost base) allows you to include in the cost base anything associated with the property that has not otherwise been claimed as a tax deduction. This means the costs associated with the period it is covered by your main residence exemption proportionally apply to the capital gain for the period it is not covered by your main residence exemption. These sorts of costs are unlikely to apply to the period it was not covered by your main residence exemption because it was probably rented and they were claimed as a tax deduction.
This apparent inconsistency is just a consequence of following the formula below. So yes the calculator is fine for your circumstances.
INCOME TAX ASSESSMENT ACT 1997 – SECT 118.185
Partial exemption where dwelling was your main residence during part only of ownership period
(1) You get only a partial exemption for a * CGT event that happens in relation to a * dwelling or your * ownership interest in it if:
(a) you are an individual; and
(b) the dwelling was your main residence for part only of your * ownership period; and
(c) the interest did not * pass to you as a beneficiary in, and you did not * acquire it as a trustee of, the estate of a deceased person.
(2) You calculate your * capital gain or * capital loss using the formula:

where:
"CG or CL amount " is the * capital gain or * capital loss you would have made from the * CGT event apart from this Subdivision.
"non-main residence days " is the number of days in your * ownership period when the * dwelling was not your main residence.
Note: The capital gain or loss may be further adjusted if the dwelling was used to produce assessable income: see section 118-190.
Example: You bought a house in July 1990 and moved in immediately. In July 1993, you moved out and began to rent it. You sold it in July 2000, making (apart from this Subdivision) a capital gain of $10,000.
You choose to continue to treat the dwelling as your main residence under section 118-145 (about absences) for the first 6 of the 7 years during which you rented the house out.
Under this section, you will be taken to have made a capital gain of:


. .
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