Issue
Were the capital improvements made to land acquired before 20 September 1985 (pre-CGT) in connection with its subdivision and development, related to each other by virtue of the factors set out in section 108-80 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes, having regard to the factors to be considered under section 108-80 of the ITAA 1997, the capital improvements made to pre-CGT land in connection with its post-CGT development and subdivision were related to each other.
Facts
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.
Reasons for Decision
Section 108-80 of the ITAA 1997 sets out the factors that need to be considered in deciding whether the capital improvements (that is, the subdivision and land development costs) to the pre-CGT assets (the new subdivided blocks) are related to each other. The factors include: • the nature of the CGT asset to which the improvements are made; • the nature, location, size, value, quality, composition and utility of each improvement; • whether the improvement depends on a physical, economic, commercial or practical sense on another improvement; • whether the improvements are part of an overall project; • whether the improvements are of the same kind; and, • whether the improvements are made within a reasonable period of time of each other.
Having considered the relevant factors above and the specific circumstances of this case, including: • the assets to which the improvements were made was each block of land in its unimproved state; • the improvements were all undertaken as part of an overall project, so as to ensure that the developed land would comply with council requirements; • the improvements may not have been of the same kind, but they were all necessary for the completion of the project; • the improvements were all made within a few years of each other, in order to complete the project;
it is considered that the improvements to the blocks of land in these particular circumstances are related to each other in accordance with section 108-80 of the ITAA 1997.