The basic rule
A CGT asset acquired before 20 September 1985 is disregarded for CGT purposes on disposal. Acquisition is generally tested at the contract date, not settlement, so a property contracted on 19 September 1985 and settled in November 1985 is a pre-CGT asset.
The exemption attaches to the asset, not the owner, and it is fragile. Once lost it cannot be restored.
How the exemption is lost
These are the events that convert a pre-CGT asset into a post-CGT one, or create a separate post-CGT asset alongside it.
Improvements that become separate assets
Two different provisions do this work and they are routinely conflated. A building or structure constructed on pre-CGT land on or after 20 September 1985 is a separate CGT asset under s108-55(2), full stop — there is no threshold and no dollar test. Build a house in 1998 on land bought in 1980 and the land stays pre-CGT while the house does not.
Section 108-70 covers other capital improvements — subdivision works, rezoning costs, land improvements. One of those becomes a separate CGT asset only where its cost base exceeds both the improvement threshold for the income year in which the CGT event happened and five per cent of the capital proceeds from that event. Both tests must be met, and related improvements are aggregated under s108-70(3).
The threshold is indexed annually under s108-85(2). For 2025–26 it is $187,962; it was $174,465 for 2023–24 and $162,899 for 2022–23. Always use the figure for the year the CGT event happened, not the current one.
One useful exception: s108-70(2) does not apply to a CGT event that happens because of your death. Improvements that would have become separate assets on a sale are not carved out when the asset passes to your beneficiaries.
Where a separate asset does exist, the valuation instruction is an apportionment of the capital proceeds between the original asset and the improvement, as s116-40 requires.
Why a 1985 valuation is still commissioned
A valuation effective in or around September 1985 is required in several situations that remain live.
Can a 1985 valuation actually be evidenced?
Yes, and we prepare them routinely. Settled sales evidence from 1985 is available through the major property databases, and it is supplemented by council rate records, historical aerial photography, contemporaneous newspaper listings and archived market commentary. The evidence set is thinner than for a current valuation and the report says so.
The practical constraint is describing the property as it stood in 1985. Where the owner or executor holds original contracts, building approvals or photographs, the report is materially stronger. Send whatever exists, however incomplete.