Including termination and exit fees in cost base calculations
What is a termination or exit fee?
A termination or exit fee is a fee charged by a third party because your capital gains tax (CGT) asset is ending. This will generally happen when your asset is a contract or a right you hold against another entity or person and you end that contract.
Linda decided to buy an investment property off the plan for $500,000. She entered into a contract with Gold Property Developments Ltd (Gold) on 1 March 2015.
The contract with Gold contained a termination clause stating that if, for any reason, Linda did not fulfil the conditions of the contract, she would have to pay a termination fee equal to 2% of the purchase price of the property.
On 3 September 2015, Linda ended her contract with Gold because she could no longer continue with the purchase of this property. Gold charged Linda $10,000 as a termination fee for ending the contract (2% of $500,000 is $10,000).
Linda paid a 10% deposit on entering into the contract, so Gold returned $40,000 to Linda and retained $10,000 as the termination fee.
End of example
A termination fee can be charged by withholding the identified amount from the amount returned back to you.