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Were the capital improvements made to land acquired before 20 September 1985 (pre-CGT) in connection with its subdivision and development, and which were related to each other in accordance with section 108-80 of the Income Tax Assessment Act 1997 (ITAA 1997) separate assets under section 108-70 of the ITAA 1997?

No, providing the capital improvement expenditure applicable to each block of land is: - less than the improvement threshold for the relevant year and - 5% of the capital proceeds from the sale each block,

the capital improvement does not constitute a separate asset under section 108-70 of the ITAA 1997.

The taxpayer acquired a farm property before 20 September 1985. After that date, the taxpayer sold approximately one quarter of the property, but was unable to find a buyer for the remainder. Over subsequent years the taxpayer made numerous attempts to have the remaining land rezoned and subdivided. In early 1999 the taxpayer was advised that the land had been rezoned and the subdivision of title occurred.

During subdivision and development of the property the following work was undertaken: • roads were laid by an earthmoving contractor; • underground power was installed by the local electrical commission; • fences were erected; • trees were planted; • compensation basins were installed by an engineer; • drainage receivers were created and transferred to the Water Corporation, who later transferred them to the local council; and, • a bridge was erected over a drainage reserve.

The subdivision works have all been transferred to the local shire for no consideration.

When a CGT asset (the original asset) is split into 2 or more assets (the new assets), such as when land is subdivided, the subdivision of the land into subdivided blocks is not a CGT event, according to subsection 112-25(2) of the ITAA 1997. If the original land was acquired before 20 September 1985, then each new block retains its pre-CGT status (Taxation Determination TD 7).

Under subsection 108-70(3) of the ITAA 1997, capital improvements to a pre-CGT asset that are related to each other may be treated as a separate CGT asset if the total of their cost bases when a CGT event (for example a disposal) happens in relation to the asset, is : • more than the improvement threshold for the relevant income year, and • more than 5% of the capital proceeds from the event.

In the taxpayer's case, the total subdivision and land development costs are considered related to each other in accordance with section 108-80 of the ITAA 1997. The total cost of these capital improvements is to be allocated over all of the subdivided blocks.

Accordingly, if the capital improvement expenditure applicable to each subdivided block is less than the improvement threshold for the relevant year and 5% of the capital proceeds then, for the purposes of any subsequent disposal by the taxpayer of any of these blocks of land, the capital improvement is not taken to be a separate CGT asset.