Chapter 5 – Overriding the private limitation

5.1 The current provision that allows deductions for the costs of acquisition and improvement of land (section DB 23) is subject to the private limitation. Therefore, technically, where there is private use of land that is subject to tax on sale, part of the costs of acquisition and improvements should also be denied to take into account the private benefit received.

5.2 However, officials are of the view that private use should not affect the deductibility of acquisition and capital improvement costs. As noted, these costs should be fully deductible at the time of sale, no matter how the property is used while it is held to ensure that only the net proceeds are income.

5.3 To address this issue it is proposed that section DB 23 should also be amended so that it overrides the private limitation.