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  • The indexation method

    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

    You can use the indexation method to calculate your capital gain if:

    • a CGT event happens to an asset you acquired before 11.45am on 21 September 1999, and
    • you owned the asset for 12 months or more.

    This means that at the time of the CGT event, you can increase each element of the cost base by an indexation factor (other than the third element-non-capital costs of ownership).

    As indexation is frozen as at 30 September 1999, you can index your cost base only up to the September 1999 quarter.

    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, you can use the indexation method:

    • if you acquire a CGT asset as a legal personal representative or a beneficiary of a deceased estate. The 12-month requirement is satisfied if the deceased acquired the asset 12 months (or more) before you disposed of it, or
    • 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 worked out based on the CPI figures at appendix 1.

    For CGT events that occurred after 30 June 1999, the indexation factor is the CPI figure for the September 1999 quarter (123.4) divided by the CPI figure for the quarter in which you incurred costs relating to the asset.

    If the CGT event happened on or after 21 September 1999, you use this formula:

    Indexation factor =

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

    If the CGT event happened before 21 September 1999, you use this formula:

    Indexation factor =

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

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

    For most assets, you index expenditure from the date you incur it, even if you do not pay some of the expenditure until a later time. However, there is an exception for partly paid shares or units acquired on or after 16 August 1989. If the company or trust later makes a call on the shares or units, you use the CPI figure for the quarter in which you made that later payment.

    If you purchased shares in the Commonwealth Bank of Australia (CBA) or Telstra 1 (the first public offer of Telstra shares), see appendix 2 for the dates from which indexation applies to each instalment paid.

    Last modified: 31 Aug 2010QC 16195