• Money received does not exceed the cost of repair or replacement

    Attention

    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

    If the amount of money you received is less than or equal to the expenditure you incurred to repair or replace the original asset, any capital gain is disregarded. The expenditure you include in the cost base of the asset when a later CGT event happens is reduced by the amount of the gain. Again, the capital gain is deferred.

    Example

    Expenditure incurred is more than the money received

    Gerard's business premises were destroyed by fire on 15 March 2000. He received $46,000 in compensation from his insurance company.

    It cost him $57,000 to reconstruct the premises, $11,000 more than the amount of compensation he received.

    Gerard made a capital gain of $2,000 because his cost base for the building was $44,000 at the time of the fire.

     

    $

     

    $

    Money received

    46,000

    Money received

    46,000

    Cost base

    44,000

    Replacement expenditure

    57,000

    Capital gain

    2,000

    Shortfall

    11,000

    As the compensation money does not exceed the repair expenditure, the capital gain is disregarded. However, the amount of expenditure that Gerard can include in the cost base of the repaired building is reduced by the amount of the capital gain ($2,000) to $55,000.

    Last modified: 18 Sep 2009QC 18323