Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-1 - CAPITAL GAINS AND LOSSES: GENERAL TOPICS  

Division 108 - CGT assets  

Subdivision 108-D - Separate CGT assets  

Operative provisions

SECTION 108-70   When is a capital improvement a separate asset?  
Improvements to land

108-70(1)    

A capital improvement to land is taken to be a separate *CGT asset from the land if one of the balancing adjustment provisions set out in subsection 108-55(1) applies to the improvement (whether or not there is a balancing adjustment).

Example:

You own land that you use for pastoral operations. You build some fences that are destroyed by fire. The fences are depreciating assets and are subject to a balancing adjustment on their destruction under Division 40 . The fences are taken to be a separate CGT asset from the land.

Unrelated improvements to pre-CGT assets

108-70(2)    

A capital improvement to a *CGT asset (the original asset ) that you *acquired before 20 September 1985 (that is not related to any other capital improvement to the asset) is taken to be a separate *CGT asset if its *cost base (assuming it were a separate CGT asset) when a *CGT event happens (except one that happens because of your death) in relation to the original asset is:

(a) more than the *improvement threshold for the income year in which the event happened; and

(b) more than 5% of the *capital proceeds from the event.

Example:

In 1983 you bought a boat. In 1999 you install a new mast (a capital improvement) for $30,000. Later, you sell the boat for $150,000.

If the cost base of the improvement in the sale year is $41,000 and the improvement threshold for that year is $96,000, the improvement will not be treated as a separate asset.

Note 1:

Section 108-80 sets out the factors for deciding whether capital improvements are related to each other.

Note 2:

If the improvement is a separate asset, the capital proceeds from the event must be apportioned between the original asset and the improvement: see section 116-40 .

Related improvements to pre-CGT assets

108-70(3)    
Capital improvements to a *CGT asset (the original asset ) that you *acquired before 20 September 1985 that are related to each other are taken to be a separate *CGT asset if the total of their *cost bases (assuming each one were a separate CGT asset) when a *CGT event happens in relation to the original asset is:

(a) more than the *improvement threshold for the income year in which the event happened; and

(b) more than 5% of the *capital proceeds from the event.

Note:

If the improvements are a separate asset, the capital proceeds from the event must be apportioned between the original asset and the improvements: see section 116-40 .

Some improvements not relevant

108-70(4)    
This section does not apply to a capital improvement:

(a) that took place under a contract that you entered into before 20 September 1985; or

(b) if there is no contract - that started or occurred before that day.

108-70(5)    
Subsections (2) and (3) do not apply if the capital improvement is made to:

(a) a *Crown lease; or

(b) a *prospecting entitlement or *mining entitlement; or

(c) a *statutory licence; or

(d) a *depreciating asset to which Subdivision 124-K applies.

Note:

Section 108-75 deals with this situation.

108-70(6)    
This section does not apply to a capital improvement consisting of repairs to or restoration of a *CGT asset *acquired before 20 September 1985 in circumstances where there is a roll-over under Subdivision 124-B .