• Choosing frozen indexation or the CGT discount

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    If you have the option of choosing the CGT discount or calculating the capital gain using indexation frozen as at 30 September 1999, there is no one factor you can use as a basis to select the best option. Relevant factors include the type of asset you own, how long you have owned it, when you owned it and the past and future expected rates of inflation. You will need to work out your capital gain under each option in order to determine the best result in your particular circumstances.

    Example

    Val bought a property for $150,000, under a contract dated 24 June 1991. The contract provided for the payment of a deposit of $15,000 on that date, with the balance of $135,000 to be paid on settlement on 5 August 1991.

    She paid stamp duty of $5,000 on 20 July 1991. On 5 August 1991, she received an account for solicitor's fees of $2,000, which she paid as part of the settlement process.

    She sold the property on 15 October 1999 - the day the contracts were exchanged - for $215,000. She incurred costs of $1,500 in solicitor's fees and $4,000 in real estate fees.

    Val's capital gain using frozen indexation

    $

    Deposit

    15,000

    123.4/106.0

    1.164

    =

    17,460

    Balance

    135,000

    123.4/106.6

    1.158

    =

    156,330

    Stamp duty

    5,000

    123.4/106.6

    1.158

    =

    5,790

    Solicitors fees

    2,000

    123.4/106.6

    1.158

    =

    2,316

    No indexation is available for the solicitor's fees in relation to the sale of the property


    1,500

    or the real estate fees

    4,000

    Cost base

    187,396

    Val's capital gain is worked out as follows:

    Capital proceeds

    215,000

    Less cost base

    187,396

    Capital gain

    27,604

    Assuming that Val has not made any other capital losses or capital gains in the 1999-2000 year and does not have any prior year net capital losses, the net capital gain to be included in Val's assessable income is $27,604.

    Val's capital gains using the CGT discount

    Cost base is calculated as follows:

    Deposit

    15,000

    Balance

    135,000

    Stamp duty

    5,000

    Solicitor's fees

    2,000

    Solicitor's fees

    1,500

    Real estate fees

    4,000

    Cost base

    162,500

    Val's discount capital gain is calculated as follows:

    Capital proceeds

    215,000

    Less cost base

    162,500

    Discount capital gain

    52,500

    Less 50% discount

    26,250

    Net capital gain

    26,250

    Val will choose the CGT discount rather than indexation. Download Val's worksheets to show you how she might complete the CGT worksheets using both methods.

    Last modified: 18 Sep 2009QC 18323