• Special rules for cost base and reduced cost base

    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

    There are other rules which may affect the cost base or reduced cost base of an asset. For example, they are calculated differently:

    • when you first use your main residence to produce income - see chapter 4 for more information
    • for an asset that you receive as a beneficiary or as the legal personal representative of a deceased estate - see chapter 5 for more information
    • for bonus shares or units, rights and options and convertible notes - see chapter 6 for more information.

    Example

    Capital proceeds exceed cost base - capital gain

    In July 1996 Lyn bought 800 Co A shares at $3 per share. She incurred a broker's fee and stamp duty of $100. In December 1999, Lyn sold all 800 shares for $4 per share. She incurred a broker's fee and stamp duty of $75.

    The cost base of the shares if Lyn chooses to index the cost base is:

    Col 1

    Col 2

    Col 3

    Col 4

     

    Date expense incurred

    Description of expense

    Amount

    Indexation factor

    Col 3 x Col 4

       

    $

     

    $

    July 1996

    Purchase price

    2,400

    123.4/120.1 = 1.027

    2,465

    July 1996

    Broker's fee and stamp duty

    100

    1.027

    103

    December 1999

    Broker's fee and stamp duty

    75

     

    75

    Cost base

     

    2,575

     

    2,643

    Lyn calculates her capital gain as follows:

     

    $

    Capital proceeds

    3,200

    Less cost base

    2,643

    Capital gain

    557

    If Lyn does not choose to apply indexation, the capital gain is calculated as follows:

     

    $

    Capital proceeds

    3,200

    Less cost base (without indexation)

    2,575

    Capital gain

    625

    The $625 is a discount capital gain. If Lyn does not have any capital losses to apply against the capital gain, the amount of capital gain she would include in her assessable income is $312 (50% of $625).

    Example

    Reduced cost base exceeds capital proceeds - capital loss

    If, in the above example, Lyn had sold the 800 shares for $2.50 per share she would have made a capital loss, calculated as follows:

     

    $

    Capital proceeds

    2,000

    Reduced cost base

    2,575

    Capital loss

    575

    Lyn would complete a worksheet and keep it with her records. Download a copy of Lyn's worksheet.

    The difference between the cost base in the first example ($2,643) and the reduced cost base in the second example ($2,575) arises because the cost base was indexed. Costs are not indexed in calculating the reduced cost base or discount capital gains.

    Example

    Capital proceeds are less than the cost base but more than the reduced cost base

    Rob purchased a block of land for $50,000 in October 1993 and sold it 5 years later for $52, 000. He calculated the cost base (including indexation) to be $55,400. He had no incidental costs so his reduced cost base equals the purchase price of the land ($50,000) .

    As the capital proceeds he received are less than the cost base but more than the reduced cost base, Rob has not made a capital gain or a capital loss.

    Last modified: 18 Sep 2009QC 18323