• 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.

    Example

    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.

      Last modified: 21 Jun 2016QC 24175