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If you acquired the original asset on or after 20 September 1985, the first element of the cost base or reduced cost base of the replacement asset is taken to be the cost base or reduced cost base of the original asset at the time of the event.
Jon acquired land after 19 September 1985 that the State Government compulsorily acquired on 14 July 1999. The cost base of the land at the time it was compulsorily acquired was $180,000. As compensation, Jon received another piece of land with a market value of $200,000.
Because the market value of the replacement land was greater than the cost base of the original land just before it was compulsorily acquired, the capital gain Jon made on the disposal of the original land is disregarded. Jon is taken to have paid $180,000 to acquire the replacement land - that is, the cost base of the original land at the time it was compulsorily acquired.
Last modified: 18 Sep 2009QC 18323