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Edited version of private ruling
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Ruling
Subject: Capital gains tax (CGT)
Can the renovations on an existing dwelling be treated as a replacement asset?
No.
This ruling applies for the following period
1 July 2009 to 30 June 2010.
The scheme commenced on
1 July 2009.
Relevant facts
You purchased your investment property with the house on it in after 1985.
The house was in good condition when purchased.
The property has been rented.
The house deteriorated and became dilapidated.
You received an amount for the compulsory acquisition of some land which was part of your investment property in 2010.
You have used the money for renovations to the house on the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 124-70
Reasons for decision
Replacement asset rollover
A capital gain or capital loss is made as a result of a CGT event happening to a CGT asset.
The most common event is CGT event A1. A CGT event A1 happens when you dispose of an asset to someone else.
In certain situations, a capital gain made when a CGT event happens can be disregarded or reduced. One such example of this is the replacement asset rollover applicable to assets that have been lost, destroyed or compulsorily acquired by a Government authority.
You may choose roll-over where compensation is received and a capital gain would have resulted from the CGT event for a CGT asset that is:
· compulsorily acquired by an Australian government agency
· disposed of to an Australian government agency prior to a pending compulsory acquisition by them
· lost or destroyed, or
· when a lease granted by an Australian government agency expires and is not renewed (section 124-70 of the ITAA 1997).
A further requirement is that the taxpayer must receive money or another CGT asset or both for the CGT event to be eligible for roll-over (subsection 124-70(2) of the ITAA 1997).
If money is received for the event happening, section 124-75 of the ITAA 1997 provides that the taxpayer must incur expenditure in acquiring another CGT asset but not a depreciating asset. The new asset must be used for the same or similar purpose to which the original asset was used. Some of the expenditure must be incurred no later than one year after the end of the income year in which the event happens, or within such time as the Commissioner allows in special circumstances.
In your case, you have chosen to invest the in the renovations of a property you already own.
The renovations you have carried out do not meet the requirements under section 124-75 of the ITAA 1997 as the renovation of an existing building is not the purchase of a CGT asset, while you may have purchased some small CGT assets such as a stove these are depreciating assets if they are not part of the building.
Therefore, the replacement asset roll-over is not available to you.