INCOME TAX ASSESSMENT ACT 1997 - SECT 108.70 When is a capital improvement a separate asset?

INCOME TAX ASSESSMENT ACT 1997 - SECT 108.70

Improvements to land

  (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

  (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

  (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

  (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.

  (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.

  (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.