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  • Major capital improvements to a dwelling acquired before 20 September 1985



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

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    If you acquired a dwelling before 20 September 1985 and you make major capital improvements after that date, part of any capital gain you make when a CGT event happens in relation to the dwelling could be taxable. Even though you acquired the dwelling before capital gains tax started, major capital improvements are taken as separate CGT assets from the original asset and may therefore be subject to capital gains tax in their own right if they are made on or after 20 September 1985.

    If the dwelling is your main residence and the improvements are used as part of your home, they are still exempt. This includes improvements on land adjacent to the dwelling (for example, installing a swimming pool) if the total land, including the land on which the home stands, is two hectares or less.

    However, if the dwelling is not your main residence or you used the improvements to produce income for any period, the part of any gain that is attributable to the improvements for that period is taxable.

    A capital improvement is taken to be major if its original cost (indexed for inflation) is more than 5% of the amount you receive when you dispose of the dwelling and the improvement is also over a certain threshold. The threshold increases every year to take account of inflation.

    Improvement thresholds for 1985-86 to 2000-01

    Income year

    Threshold ($)

    Income year

    Threshold ($)


    50 000


    80 756


    53 950


    82 290


    58 859


    84 347


    63 450


    88 227


    68 018


    89 992


    73 459


    89 992


    78 160


    91 072


    80 036


    92 082

    When you dispose of the dwelling, the capital gain or capital loss on the major improvements is calculated by taking away the cost base of the improvements 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

    You can choose to calculate the capital gain made on the improvements using either the indexation or the discount method if:

    • the improvements were made under a contract entered into before 11.45am on 21 September 1999, and
    • the dwelling was sold after that time, and
    • you owned the improvements for at least 12 months.

    If you entered into the contract to make the improvements after 11.45am on 21 September 1999, you calculate your gain using the CGT discount of 50%.

    In calculating the amount of capital proceeds to be attributed to the improvements, you must take whatever steps are appropriate to work out their value. If you make an estimate of this amount, it must be reasonable and you must be able to show how you arrived at the estimated amount.

    Last modified: 31 Aug 2010QC 16195