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  • Modifications to the cost base and reduced cost base


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

    End of attention

    In some cases, the general rules for calculating the cost base and reduced cost base have to be modified. For example, the market value may be substituted for the first element of the cost base or reduced cost base if:

    • you did not incur expenditure to acquire the asset
    • some or all of the expenditure you incurred cannot be valued, or
    • you did not deal at arm's length with the vendor in acquiring the asset.

    Any expenditure you recoup does not form part of the cost base or reduced cost of a CGT asset except if the recouped amount is included in your assessable income. This might include an insurance pay-out you receive or an amount paid for by someone else, unless those amounts are included in your assessable income.

    Example: Recouped expenditure

    John bought a building in 2000 for $200,000 and incurred $10,000 in legal costs associated with the purchase. As part of a settlement, the vendor agreed to pay $4,000 of the legal costs. John did not claim as a tax deduction any part of the $6,000 he paid in legal costs.

    He later sells the building. As he received reimbursement of $4,000 of the legal costs, in working out his capital gain he includes only $6,000 in the cost base.

    End of example

    If you acquire a CGT asset or incur expenditure and only part of the expenditure you incur relates to the CGT asset, only that part of the expenditure that is reasonably attributable to the asset can be included in its cost base or reduced cost base.

    Similarly, if a CGT event happens only to part of a CGT asset, the cost base or reduced cost base of the asset is generally apportioned to work out the capital gain or capital loss from the CGT event.

    Last modified: 25 Feb 2020QC 27448