• ## Choosing frozen indexation or the CGT discount

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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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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.