Can CGT be applicable to a Pre 1985 Residential Property – Yes

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Renovations completed after 1985 can be deemed to be a separate asset to the original property, and hence CGT will be applicable.

Example

John & Mary purchased a residential property in 1984 for $195K to use as their primary residence. In 2000 they moved out and decided to rent out their old home while they purchased a new home elsewhere.

In 2005 John & Mary’s rental property was now fairly tired and couldn’t attract a good rental return, so they completed renovations, kitchen, bathroom, and did some remodelling to bring the property up to date. The whole renovation cost $110K.

Over the years the area had dramatically increased in value, now valued at $950K, John & Mary decided to sell, with the misguided belief the property ( being a Pre 1985 CGT property) would be exempt from CGT on sale.

Of the $950K received for the home, $300K could be attributed to the improvements made in 2005.

If the improvement exceeds the improvement thresholds or 5% of the sale proceeds, the ATO will deem the improvements to be a separate CGT asset subject to CGT.

Sale of property $950,000

Value attributed to improvements $300,000

(exceeds the improvement threshold)

Cost base of improvements $110,000

(paid in 2005)

Capital Gain $190,000

Less 50% discount $95,000

Net Capital Gain $95,000

  • John & Mary Assumed No CGT