Taxation Determination TD 98/19







1. Yes. We consider that initial repair expenditure incurred on a CGT asset after its acquisition is included in the fourth element of the relevant cost base of the asset (about capital expenditure to increase an asset's value) under subsection 110-25(5) (cost base) or subsection 110-55(2) (reduced cost base) of the Income Tax Assessment Act 1997 ('the 1997 Act'). We consider that initial repair expenditure does not satisfy any other cost base, or reduced cost base, element in sections 110-25 and 110-55. | 2. We accept that initial repair expenditure satisfies the requirements of the provisions referred to above because: | 3. Our view of the law applies whether the CGT asset is acquired by purchase or is a leasehold interest. | 4. If initial repair expenditure is apportioned to allow a deduction under section 25-10 (about deductibility of repairs) for a part of the expenditure that remedies deterioration of the asset (see paragraphs 63 to 66 of TR 97/23), the relevant cost base of the CGT asset may only include the expenditure to the extent that it is not deductible under section 25-10. The same approach applies in relation to deductions apportioned under section 53 of the 1936 Act. | Technical note: 5. The expression 'initial repair' is used in this Determination in the same sense that it is used in paragraph 5 of TR 97/23. A repair is not an 'initial repair' simply because it is the first repair made to an asset after it is acquired. It is an 'initial repair' only if repair is necessary when the asset is acquired because the asset has defects, damage or deterioration or is not in good order and suitable for use in the way intended. To be an 'initial repair' the work done to the asset must be a 'repair' in the ordinary meaning of the word (that is, the remedying or making good of defects in, damage to, or deterioration of, the asset to restore its efficiency of function without changing its character); it must not be an improvement, addition or alteration nor be a renewal, restoration or reconstruction of the entirety of the asset (although a minor or incidental degree of improvement may still be a repair). | Commissioner of Taxation 5 August 1998 | Previously issued as Draft TD 98/D3


Legislative references: ITAA97 25-10 ITAA97 110-25(5) ITAA 97 110-55(2) ITAA36 53 ITAA36 160ZH(1)(c) ITAA36 160ZH(2)(c) ITAA36 160ZH(3)(c)
Subject references: assets CGT asset capital assets CGT asset issues CGT cost base cost base expense apportionment initial repair initial repair expenses producing assessable income repairs and maintenance expenses