• 3 methods of calculating capital gain

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    The 3 methods of calculating capital gain are explained and compared in the table below.

    Capital gain calculation methods

     

    Indexation method

    Discount method

    'Other' method

    Description of method

    Allows you to increase the cost base by applying an indexation factor based on CPI up to September 1999

    Allows you to discount your capital gain

    Basic method of subtracting the cost base from the capital proceeds

    When to use the method

    Use for an asset held for 12 months or more if it produces a better result than the discount method. Use only for assets acquired before 21 September 1999.

    Use for an asset held for 12 months or more if it produces a better result than the indexation method.

    Use when the indexation and discount methods do not apply (for example, if you have bought and sold an asset within 12 months).

    How to calculate your capital gain using the method

    Apply the relevant indexation factor (see CPI table at appendix 2), then subtract the indexed cost base from the capital proceeds (see worked example for Val).

    Subtract the cost base from the capital proceeds, deduct any capital losses, then reduce by the relevant discount percentage (see worked example for Val).

    Subtract the cost base (or the amount specified by the relevant CGT event) from the capital proceeds (see worked example for Marie-Anne).

    The 'other' method is the method you use when neither the indexation nor discount method applies. It applies-for example, to any CGT asset you have bought and sold within 12 months. As a general rule, to calculate your capital gain using the 'other' method, you subtract your cost base from your capital proceeds.

    You can use the indexation method to calculate your capital gain for assets you acquired before 21 September 1999 and owned for 12 months or more. This method allows you to increase the amount of your cost base (and reduce your capital gain) by an inflation factor based on increases in the Consumer Price Index (CPI) up to September 1999, see appendix 2.

    You can use the discount method to calculate your capital gain for any asset that you have owned for 12 months or more. If you use this method you do not apply the indexation factor to the cost base but you may be able to reduce your capital gain by the CGT discount (50 per cent for individuals and trusts, 33 1/3 per cent for complying superannuation funds). Generally, the discount method does not apply to companies.

    In some cases you may be able to choose either the discount method or the indexation method to calculate your capital gain. In this case use the method that gives you the better result.

    Last modified: 06 Oct 2009QC 27417