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If a taxpayer travels to a non income producing property in their own car to carry out maintenance on the property, can the taxpayer use the 'cents per kilometre' method in Subdivision 28-C of the Income Tax Assessment Act 1997 (ITAA 1997) as an estimate of the travel costs to be included in the third element of the property's cost base?

No. The 'cents per kilometre' method cannot be used as an estimate of the amount of the travel costs that can be included in the third element of the cost base of the property under subsection 110-25(4) of the ITAA 1997 as the amount calculated under that method includes an amount for the decline in value of the car which is a capital cost.

A taxpayer who resides in one State owned a non income producing property in another State which they acquired after 20 August 1991.

The taxpayer travelled interstate for a holiday and whilst there travelled to the property in their own car to carry out maintenance work.

The taxpayer disposed of the property and made a capital gain.

The taxpayer sought to use the cents per kilometre method for determining the amount of the travel costs to be included in the third element of the cost base of the property as a result of travelling to the property in their own car to carry out maintenance on the property.

The third element of the cost base of an asset acquired after 20 August 1991 includes the non-capital costs of ownership of the asset which are not deductible (subsection 110-25(4) of the ITAA 1997). For non-capital costs to fall within the third element of cost base, the costs incurred must be directly related to the ownership of the asset.

In this case, as the travel to the property to carry out maintenance is directly related to the ownership of the property, the travel costs incurred in undertaking the travel will form part of the third element of the cost base of the property provided they constitute non-capital costs.

Where the taxpayer undertakes the travel to the property in their own car, the question arises whether the cents per kilometre method in Subdivision 28-C of the ITAA 1997 can be used for calculating the costs incurred in relation to the travel.

The 'cents per kilometre' method in Subdivision 28-C of the ITAA 1997, when used as a method for deducting car expenses, in effect allows a partial deduction for a variety of car expenses including fuel and oil, registration, insurance and an amount representing the decline in value of the car. An amount representing the decline in value of a car cannot be included within the third element of the cost base of an asset as it represents a capital cost as opposed to a non-capital cost.

Accordingly, the cents per kilometre method cannot be used to estimate the car expenses that can be included in the third element of the cost base of the property. Instead, the car expenses that will form part of the third element will be the non-capital expenses that relate wholly to the travel to the property and, where the car expenses relate only in part to that travel, the part of those expenses that is reasonably attributable to the travel to the property (subsection 112-30(1A) of the ITAA 1997). Note: This note has been added to explain the legislative changes made to certain capital gains provisions, as a result of Act No 32 of 2006, which received Royal Assent on 6 April 2006. For CGT events happening on or after 1 July 2005, the third element of the cost base has been amended to include the 'cost of owning' the CGT asset and remove the requirement that the costs be 'non-capital costs of ownership'. However, these changes do not affect the decision in this interpretative decision. [HISTORY: This ID has been amended to explain the legislative changes made to certain elements of the CGT cost base, where the relevant CGT event happens on or after 1 July 2005.]