Are you able to use a market valuation for the cost base of your property when calculating capital gains tax?
No. This ruling applies for the following period : Year ending 30 June 20XX The scheme commenced on: 1 July 20XX
You purchased the land a number of years ago. You built a dwelling on this land with the intention of moving into the property. On completion of the construction of the dwelling you rented the house to a tenant. You moved into the property after the rental period and lived at the property for a few years. The property was rented out again after you moved out until it was sold. You will not be claiming the main residence exemption for the period you lived in the property as you had another main residence during the same period. You do not have any records in relation to the purchase of the land and construction of the dwelling.
Income Tax Assessment Act 1997 section 121-10 Income Tax Assessment Act 1997 section 121-20
You make a capital gain or capital loss if a CGT event happens to a CGT asset. The most common CGT event is a CGT event A1. For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset. The cost base of a CGT asset is made up of five elements. You need to add together all these elements to work out your cost base for each CGT asset. The first element includes money paid for the asset (or required to be paid) or the market value of property given (or required to be given). Record Keeping Division 121 of the Income Tax Assessment Act 1997 (ITAA 1997) contains the record keeping provisions for capital gains and losses. Generally, you must keep records of matters that affect the capital gains or losses that you make. In particular, section 121-10 of the ITAA 1997 states that you must retain the records for five years after the last relevant CGT event, which in your case is the sale of the property.
Section 121-20 of the ITAA 1997 provides that you must keep records of every act, transaction, event or circumstance that can reasonably be expected to be relevant to working out whether you have made a capital gain or loss from a CGT event. Subsection 121-20(1) of the ITAA 1997 outlines that when you dispose of a CGT asset, the records that are relevant to working out your capital gain or loss includes records of when the asset was acquired; the date the asset was disposed of; records of each element of the cost base and reduced cost base; and the amount for which the asset was sold. For records relating to real estate, copies of the contract for the purchase of the asset and the contract for the sale of the asset would be relevant. In addition, invoices/receipts from solicitors, the real estate agent or other costs incurred in the acquisition or sale, for example the cost of registering the transfer or stamp duty payable on the contract for the purchase, would also be relevant. Invoices and receipts recording the cost of any enhancements to the property would also need to be retained. This includes construction costs of any dwellings and any capital improvements made to it.
If you have acquired assets on or after 20 September 1985 and have not kept records, you can still do something about it. Subsection 121-20(5) of the ITAA 1997 states that if the necessary records of an act, transaction, event or circumstances do not already exist, you must reconstruct them or have someone else reconstruct them. For example, the reconstruction of records for the purchase of a property can be done by requesting the real estate agent who was involved in the purchase to provide copies of most of the records required in relation to the purchase of the land. Alternately, the relevant State Land Titles Office may be able to provide a copy of the transfer of title showing the purchase price and the relevant State Revenue Office will have a record of stamp duty paid on the purchase. The reconstruction of records for the construction of the dwelling, capital improvements and renovations can be done by requesting receipts for payment from the builder/s who completed the work. If the builder/s are no longer in operation, you could obtain bank records showing the payments you made to the builder/s.
If you do not have records of transactions, or are unable to have them reconstructed, you cannot include that amount in the cost base of the property. You are not able to use a market valuation to determine the cost base of your property. You are required to reconstruct your records and if this cannot be done then the cost base for your property will be zero. Note that section 118-192 of the ITAA 1997 that allows for cost base purposes, the use of the market value of a property when it is first used to produce income, does not apply in your case. This is because that rule only applies if you initially used the property as your main residence before it was first used to produce income whereas in your case, you rented out the property once construction of the house was complete.