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The cost base of a CGT asset is made up of 5 elements.
- First element: money paid or required to be paid and the market value of property given or required to b given to acquire the CGT asset. The first element is reduced by the amount of your GST input tax credit (if any) for acquisition or importation of the CGT asset.
- Second element: incidental costs of acquiring the CGT asset or costs in relation to the CGT event. Examples are: agent's commission; advertising to find a seller or buyer; fees paid to an accountant, professional tax adviser, valuer or lawyer for professional service; and stamp duty. You can include expenditure for advice concerning the operation of the tax law as an incidental cost only if it was provided by a recognised professional tax adviser and you incurred the expenditure after 30 June 1989. Do not include expenditure for which you have, or could be allowed, a deduction for income tax purposes in any year. The second element is reduced by the amount of your GST input tax credit (if any) for your incidental costs.
- Third element: non-capital costs you incur in connection with your ownership of a CGT asset. Examples are: interest, rates, land taxes, repairs, and insurance premiums. You can include non-capital costs of ownership only in the cost base of assets acquired after 20 August 1991.
Non-capital costs of ownership include non-deductible interest on borrowings to refinance a loan used to acquire a CGT asset and on loans used to finance capital expenditure you incur to increase an asset s value.
Non-capital costs of ownership are not included in the cost base of collectables or personal use assets. These costs cannot be indexed or used to work out a capital loss. Do not include expenditure for which you have, or could be allowed, a deduction for income tax purposes in any year.
The third element is reduced by your GST input tax credit (if any) for your non-capital costs.
- Fourth element: capital expenditure you incur to increase the value of the CGT asset if the expenditure is reflected in the state or nature of the asset at the time of the CGT event.
- Fifth element: capital expenditure you incur to preserve or defend your title or rights to the asset.
If you acquired a CGT asset after 13 May 1997, the cost base of the asset does not include:
- any expenditure on the asset that has been allowed or is allowable as an income tax deduction - this applies to all elements of the cost base
- heritage conservation expenditure and landcare and water facilities expenditure incurred after 12 November 1998 that give rise to a tax rebate (also called tax offset).
Special rules apply if you acquired land before 13 May 1997, but after 13 May 1997 and before 1 July 1999 you incur expenditure on constructing a building that is treated as a separate asset from the land for CGT purposes. If you think this may be relevant to you, contact the ATO for more information.
Special building write-off deduction
Roger acquires a rental property on 1 July 1997 for $200,000. Before disposing of the property on 30 June 2000, he claims $10,000 in special building write-off deductions.
At the time of disposal, the cost base of the property was $210,250. Roger must reduce the cost base of the property by $10,000 to $200,250.
In some cases, a deduction you have claimed on a CGT asset can be partly or wholly 'reversed' - that is, the value of part or all of the deduction may be declared as income in the year the CGT event happens. In this case, the capital gains cost base of the asset is increased by the amount of income you have to include in assessable income.
Any expenditure you recoup does not form part of the cost base of a CGT asset. In working out whether you have made a capital gain or loss from a CGT event that happens in the 1999-2000 income year or a later year, do not reduce the cost base by a recouped amount included in your assessable income.
John bought a building in 1999 for $200,000 and incurred $10,000 in legal costs associated with the purchase. As part of a settlement, the vendor agreed to pay $5,000 of the legal costs. John did not claim as a tax deduction any part of the $5,000 he paid in legal costs.
He later sells the building. As he received reimbursement of $5,000 of the legal costs, in working out his capital gain he includes only $5,000 in the cost base.
Last modified: 18 Sep 2009QC 18323