• Indexation

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    Warning:

    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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    Before the 1999-2000 income year, if you owned a CGT asset for at least 12 months, you were able to increase its cost base to take account of inflation. You could increase each element of the cost base other than the third element (non-capital costs of ownership) by an indexation factor. You did this at the time of the CGT event.

    The law has been changed to no longer allow indexation of the cost base of an asset. If you acquire an asset after 11.45 am on 21 September 1999, indexation of the cost base is not available. However, you may be eligible for the CGT discount. See The CGT discount for more information.

    If a CGT event happened at or before 11.45 am on 21 September 1999 in relation to a CGT asset acquired before that time, you may index the cost base. However, indexation is frozen as at 30 September 1999.

    If the CGT event happens after 11.45 am on 21 September 1999 in relation to a CGT asset acquired before that time, you may choose to claim indexation of the cost base in calculating the capital gain or the CGT discount. If you claim indexation, only expenditure incurred at or before that time may be indexed. See The CGT discount for more information.

    There are some exceptions to the requirement that you must have owned the asset for at least 12 months for indexation to apply. For example:

    • If you acquire an asset as a legal personal representative or a beneficiary of a deceased estate, you are taken to have acquired the asset at the time the deceased acquired it.
    • If you acquired an asset as the result of a marriage breakdown, you will satisfy the 12-month requirement if the period your spouse owned the asset and the period you have owned the asset are in total equal to or greater than 12 months.

    The indexation factor is an amount equal to the Consumer Price Index (CPI) figure for the quarter of the year in which the CGT event happened to the asset, divided by the CPI figure for the quarter of the year in which you incurred the expenditure included in any of the cost base elements (except the third element). A list of CPI figures is included in appendix A.

    If the CGT event happens after 11.45 am on 21 September 1999:

    Indexation factor

    =

           CPI figure for quarter ending 30.9.1999       
    CPI figure for quarter in which expenditure was incurred

    If the CGT event happened at or before 11.45 am on 21 September 1999:

    Indexation factor

    =

        CPI figure for quarter when CGT event happened    
    CPI figure for quarter in which expenditure was incurred

    Generally, you index expenditure from the date you incur it even if you do not pay some of the expenditure until a later time. However, if, for example, shares issued to you are partly paid and the company later makes a call on the shares, you use the CPI figure for the quarter in which you made that later payment. This does not apply to shares you acquired before 16 August 1989.

    If you purchased shares in the Commonwealth Bank of Australia (CBA) or Telstra 1 (the first public offer of Telstra shares), see page 43 for the dates from which indexation applies to each instalment paid.

    Work out the indexation factor to 3 decimal places, rounding up if the fourth decimal place is 5 or more.

    Last modified: 18 Sep 2009QC 18323