• Improvement thresholds for 1985-86 to 1999-2000

Warning:

This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

End of attention
 Income year Threshold\$ Income year Threshold\$ 1985-86 50,000 1993-94 80,756 1986-87 53,950 1994-95 82,290 1987-88 58,859 1995-96 84,347 1988-89 63,450 1996-97 88,227 1989-90 68,018 1997-98 89,992 1990-91 73,459 1998-99 89,992 1991-92 78,160 1999-2000 91,072 1992-93 80,036

When you dispose of the dwelling the capital gain on the major improvements is calculated by taking away the cost base of the improvements, indexed for inflation, from the proceeds of the sale that are reasonably attributable to the improvements.

 Capital gain on major improvement = proceeds of sale attributable to improvement - cost base of improvements indexed for inflation

In calculating the amount of capital proceeds attributable to the improvements, you must take whatever steps are appropriate to determine their value. If you make an estimate of this amount you must be able to show how you arrived at the estimated figure.

Example

Improvement on land bought before 20 September 1985

Martin bought a home in 1984. On 1 December 1993 he undertook major capital improvements worth \$85,000. He sold the home on 1 December 1999 for \$500,000. At the date of sale, the cost base of the improvements - after indexation - was \$95,370. Of the \$500,000 he received for the home, \$100,000 was attributable to the improvements.

 Test 1 Is the cost base of the improvements more than 5 per cent of \$500,000 - that is, \$25,000? Yes Test 2 Is the cost base of the improvements more than the 1999-2000 threshold of \$91,072 Yes

As the answer to both questions is Yes, Martin is subject to capital gains tax on the gain attributable to the improvements. The gain is calculated as follows:

 \$ Amount of proceeds attributable to the improvement 100,000 Less cost base of improvements indexed for inflation 95,370 Taxable capital gain 4,630

If the home was Martin's main residence, he does not have to include this gain in his tax return. If he had put the home to some income producing use at any time between undertaking the improvements and selling the home, a proportionate amount of the gain would have been taxable. For example, if the home had been rented out for one-third of the period, then one-third of the gain would have been taxable - assuming that he did not or cannot continue to treat the home as his main residence.

As Martin sold the home after 11.45 am on 21 September 1999 and had held it for at least 12 months, he could claim the CGT discount rather than choose indexation of the cost base.