Private ruling: Capital Gains Tax
Date of advice: 13 July 2017
Published: November 2017
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will capital gains or losses from the sale of your property in Country X be disregarded? | A1: Yes. | Q2: Will the capital improvements made to the property after 20 September 1985 be considered to be a separate CGT asset? | A2: No.

Relevant facts and circumstances: You were gifted a property located in Country X in March 1984 from your parent. You owned this property alone. You intend to sell this property in the 2018 financial year. You made capital improvements to the property after 19 September 1985 The cost of the improvements made to the property will be less than 5% of the capital proceeds from the disposal of the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10(5) | Income Tax Assessment Act 1997 section 108-70

Reasons for decision: Summary: A capital gain or capital loss is made when a capital gains tax (CGT) event happens to a CGT asset you own. The most common event is CGT event A1 which happens when a person disposes of a CGT asset to someone else. This includes when a person sells a property. The CGT regime started on 20 September 1985. If property was acquired before this date then any gains or losses from the sale of that property will be disregarded. In your case you were gifted the property in 1984. Since you acquired the property before 20 September 1985, any capital gains or losses on the sale of the property will be disregarded. A capital improvement to a CGT asset that was acquired before 20 September 1985 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. You have stated that the cost base of the improvements will not be more than 5% of the capital proceeds from the CGT event in relation to the disposal of the property. Therefore the capital improvements will not be considered a separate CGT asset and will not be subject to capital gains tax.