Forums / Getting Technical / Legal & Accounting / Major capital improvement, new cost base and CGT calculation?

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  • Profile photo of fxdaemonfxdaemon
    Participant
    @fxdaemon
    Join Date: 2013
    Post Count: 114

    Hi CGT experts,

    Have been reading this link https://www.ato.gov.au/Forms/Guide-to-capital-gains-tax-2013-14/?page=92#Major_capital_improvements_to_a_dwelling_acquired_before_20__160_September_1985
    few times over and it’s doing my head in trying to understand it but to no avail.

    To put things in simple terms and perspective, got a resi IP bought in 2001 at $410K, subdivided it
    couple years ago and still retaining both lots so that was no CGT event.

    Now, I plan to sell off one block with the rented property on it but like to do some reno to it before
    sale to try getting a good price for it. This leads me to research CGT treatment related to major
    capital improvement and also what extent of reno works is considered a legit major capital improvement
    in order to work out the correct cost base and resulting CGT.

    Anyone has similar prior experience able to share to crystalise it much more clearly than the example
    on the above ATO link?

    Thanks,
    FXD

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    just apportion the original costs between the two lots, and any specific costs for the one property would add to its cost base, as long as not previously claimed.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of fxdaemonfxdaemon
    Participant
    @fxdaemon
    Join Date: 2013
    Post Count: 114

    just apportion the original costs between the two lots, and any specific costs for the one property would add to its cost base, as long as not previously claimed.

    Thanks Terry.

    Does it have to be “major capital improvement” to reset the new cost base after the subdivision?
    I still don’t have a clear understanding what major capital improvement means even after speaking to my
    accountant and he just refers me to that ATO link.

    Thanks,
    FXD

    Profile photo of crjcrj
    Participant
    @crj
    Join Date: 2004
    Post Count: 618

    You have not acquired the original property before 20/09/1985 which is what your link refers to. Do what TerryW says.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    You can just look at the law itself. It is pretty clear.
    See s110-25 ITAA97
    http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s110.25.html
    Look at the 4th element

    no mention of the word “major”

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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