Issue
Will a building acquired on or before 19 September 1985 and subsequently affixed to land acquired after that date be treated as a separate asset from the land for the purposes of Part 3-1 and 3-3 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. Once affixed to the land, the building becomes part of the land. The exceptions to this principle in Subdivision 108-D of the ITAA 1997 do not apply.
Facts
A taxpayer purchased land prior to 20 September 1985. The land had a building affixed to it.
In the 1990-91 income year, the taxpayer removed the building from the land.
They then affixed the building to another piece of land acquired after 19 September 1985. They sold this land and building in the 2001-02 income year.
Reasons for decision
The land upon which the building was originally affixed was acquired before 20 September 1985. In other words, the land was a 'pre-CGT asset'. Therefore, any capital gain or capital loss arising from its disposal would be disregarded under Division 104 of the ITAA 1997.
The common law principle is that anything attached to land becomes part of the land. Therefore, the land and building was a single asset. Removing the building from the land split that asset into two pre-CGT assets - land and a building. This split did not cause a CGT event to happen (subsection 112-25(2) of the ITAA 1997).
The building was then affixed to another piece of land that was acquired after 19 September 1985. That is, the building was affixed to a 'post-CGT asset'.
Exceptions to the common law principle that anything attached to land becomes part of the land are set out in Subdivision 108-D of the ITAA 1997. In particular, section 108-55 sets out when a building is to be treated as a separate asset from land. Broadly, a building will be treated as a separate asset from the land to which it is affixed if the building is an asset for which a balancing adjustment must be worked out on sale or the building is post-CGT and the land to which it is affixed is pre-CGT. Neither exception applies in this case.
Therefore, the relocation of the building resulted in it becoming part of a 'post-CGT asset'. There is now a single 'post-CGT asset' that comprises both the land and the building. The cost base and reduced cost base of the building worked out under subsection 112-25(3) of the ITAA 1997 is added to the cost base and reduced cost base of the land (subsection 112-25(4)).
Accordingly, a single capital gain or capital loss must be calculated on the sale of the post-CGT land and building.