Private ruling: Capital improvements
Date of advice: 30 April 2026
Published: 13 July 2026
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Do the capital improvements constitute a separate CGT asset for the purposes of section 108-70 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: On Date one, Person A and Person B (You) purchased a property. At the time of purchase, the house on the property consisted of several bedrooms and a toilet and shower. On Date 2, you obtained a building permit and added additional rooms. The works were completed some months after building commenced. On Date 3, you obtained a building permit and rebuilt the garage. The works were completed some months later. You also rebuilt the tool shed. With the exception of the bricklayer, plasterer and plumber, all work was completed by you. You have provided the cost of the bricklayer's wages. During the relevant periods of building, you increased your home insurance. The insurance cover was for reinstatement and replacement of buildings. Amounts were based on contract building rates, not owner builder rates. You have provided the cost of the house extension, the tool shed and the garage. You have also replaced the fencing at the property. You have provided the cost of the improvements indexed for inflation. You lived at the house from the time of purchase for several years, at which time you commenced using the property to earn assessable income. On Date 4, the property was sold. On Date 5, settlement of sale of the property occurred.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 108-70 | Income Tax Assessment Act 1997 section 108-80 | Income Tax Assessment Act 1997 section 108-85

Reasons for decision: Summary: The capital improvements do not constitute a separate CGT asset for the purposes of section 108-70 of the Income Tax Assessment Act 1997 (ITAA 1997). | Detailed Reasoning - Detailed reasoning: Subsection 108-70(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital improvement to a capital gains tax (CGT) 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 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 Section 108-85 of the ITAA 1997 has a table which sets out the yearly improvement thresholds. For the income year ending 30 June 2026, the threshold is $187,962. Section 108-80 of the ITAA 1997 outlines the factors to be considered when determining whether capital improvements are related to each other. These factors include: (a) the nature of the CGT asset to which the improvements are made; and (b) the nature, location, size, value, quality, composition and utility of each improvement; and (c) whether an improvement depends in a physical, economic, commercial or practical sense on another improvement; and (d) whether the improvements are part of an overall project; and (e) whether the improvements are of the same kind; and (f) whether the improvements are made within a reasonable period of time of each other. ATO Interpretative Decision 2002/386 (now withdrawn) considered whether improvements in the context of a subdivision were related for the purposes section 108-180 of the ITAA 1997. In concluding that they were related, reference was made to the fact that they were all undertaken in the space of a few years as part of an overall project, were all necessary for the completion of the project and were made to the same assets namely each block of land. Although the ATO ID has been withdrawn, the views expressed are still valid. | Detailed Reasoning - Application to your circumstances: The Property is a CGT asset and CGT event A1 occurred when you entered into a contract for the sale of the Property on Date 4. As you purchased the property prior to 20 September 1985, the property is a pre-CGT asset. The improvements undertaken to the property can be viewed as related improvements as they were all undertaken to the property as part of an overall project. Therefore, the threshold will apply to the total cost of the improvements. As this amount is less than the improvement threshold for the year, the improvements are not a separate CGT asset for the purposes of subsection 108-70(2) of the ITAA 1997.