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INCOME TAX ASSESSMENT ACT 1997 - SECT 108.70

When is a capital improvement a separate asset?

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.



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