Taxation Determination TD 98/24




Examples: Example 1: 8. Jane acquires land with a building on it on 1 March 1999 at a cost of $70,000. She pays $25,000 at that time to install air conditioning plant, which is subject to the depreciation provisions of Division 42 and to which the balancing adjustment provisions of Subdivision 42-F also apply. The plant is installed ready for use for income producing purposes from 1 July 1999 and Jane is entitled to an annual depreciation deduction of $2,250 (i.e., 9% of $25,000 (prime cost)). 9. In this situation, the plant is a separate asset from the land and building, and must be accounted for separately. The building itself is not an asset separate from the land, in this example, because it is not subject to one of the balancing adjustment provisions listed in the table above (at paragraph 1) and was not constructed on land acquired before 20 September 1985. Note (d) 10. If the land had been acquired before 20 September 1985, and the building was constructed on it on or after that date, the building would be a separate asset. 11. Continuing the example, the property is sold on 1 July 2003 for a total consideration of $200,000. Of that amount, $190,000 is reasonably attributable to the land and building, and $10,000 to the plant. 12. Correctly treating the plant as a separate asset from the land and building in accordance with the CGT provisions results in a net capital gain of $92,840 being: 13. If the land, building and plant were incorrectly treated as a single asset, the capital gain made would be $68,140 (Sale price $200,000 - Cost base as indexed ($95,000 x [say] 1.388)). Note (e) 14. For simplicity, incidental costs on acquisition and disposal have been ignored in this example. In practice, they would need to be apportioned. | Example 2: 15. Jack acquires a residential property for rental purposes. As the previous owner had recently replaced the hot water system and curtains throughout the house, these items are depreciable property in Jack's hands. Jack purchases other depreciable items over the period the rental property is owned. | Example 1: Commissioner of Taxation 28 October 1998 Previously issued as Draft TD 98/D9



This Determination applies from the beginning of the 1998-99 income year to CGT events under the 1997 Act that happen to real property. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20). | 1. Subdivision 108-D sets out cases in which an asset that would be regarded as a single asset under property law is to be treated as more than one asset for CGT purposes. The Subdivision treats each of the following as a CGT asset separate from post-CGT land to which it is attached: | For this capital allowance: | You do a balancing adjustment under: | section 73B of the Income Tax Assessment Act 1936 | Timber operations: access roads | Note (a): A building or structure constructed on or after 20 September 1985 on land acquired before that date is always treated as a separate CGT asset (subsection 108-55(2)). | Note (b): Chattels (e.g., items of furniture) that are sold with the property are separate CGT assets in their own right and are not part of the real property. This is the case whether the chattels were acquired with the property or afterwards. | 2. On a CGT event happening to the real property, that CGT event happens to each separate asset comprising the property and a separate capital gain or loss calculation is necessary for each CGT asset. The capital proceeds from each CGT event are so much of the overall capital proceeds as is reasonably attributable to that event (subsection 116-40(1)). | 3. If the property is disposed of under a contract and parties dealing with each other at arm's length allocate the overall capital proceeds to the separate assets in the contract, we will accept the allocation for the purpose of subsection 116-40(1). | 4. We will accept a later agreement, between the parties in paragraph 3, that allocates the capital proceeds if this was not done in the original contract. | 5. In the absence of an agreed allocation, each party needs to make their own reasonable apportionment of the capital proceeds to the separate assets. In making this apportionment, it is expected that each party would generally have regard to, and be able to justify, their reasonable apportionment based on the relevant market values of the separate assets at the time of the making of the contract. | 6. It should be noted that the written down values of depreciable assets are not necessarily their market values. | Note (c): 7. This Taxation Determination rewrites Taxation Determination TD 94/64, which is now withdrawn. TD 94/64 is being rewritten under a project to review and rewrite Taxation Rulings and Taxation Determinations as necessary to reflect changes made to the income tax law by the Taxation Law Improvement Project. It implements a change in the law underlying TD 94/64 by now applying separate asset treatment to a building or structure on post-CGT land only if one of the balancing adjustment provisions applies (subsections 108-55(1) and 108-70(1)). Improvements that entitle owners to a deduction for capital works expenditure are no longer treated as assets separate from the land. | Sale price - Cost base as indexed | $190,000 - ($70,000 x [say] 1.388) | Reduced cost base - Sale price | ($25,000 - $15,000 ) - $10,000 | 16. If the property is sold, Jack is required to account separately (as outlined in Example 1 ) for the hot water system and curtains, together with all other depreciable items sold with the property.


Legislative references: ITAA 73B ITAA97 42 ITAA97 42-F ITAA97 108-D ITAA97 108-55(1) ITAA97 108-55(2) ITAA97 108-60 ITAA97 108-70(1) ITAA97 116-40(1) ITAA97 330-J ITAA97 387-G
Subject references: apportionment balancing adjustments building write-off capital improvement CGT depreciable assets CGT separate assets contract contract law depreciable assets real estate real property separate assets