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  • Cost base modifications and interaction with other rules

    The general rules for calculating the cost base and reduced cost base of a capital gains tax (CGT) asset are modified in certain situations, these include:

    In addition, there are other CGT rules that may affect the cost base or reduced cost base of an asset. For example, the cost base is calculated differently:

    Expenditure on heritage conservation, land care and water facilities

    If you acquired a CGT asset after 13 May 1997, the cost base and reduced cost base doesn't include:

    • heritage conservation expenditure
    • land care and water facilities expenditure incurred after 12 November 1998 that give rise to a tax offset.

    Reversal of deduction

    In some cases, a deduction you have claimed on a CGT asset can be partly or wholly 'reversed' – that is, the value of part or all of the deduction may be declared as income in the year the CGT event happens.

    In this case, the cost base of the CGT asset is increased by the amount you have to include in your assessable income.

    Indexation

    If you use the indexation method to calculate a capital gain, some of the cost base expenditure you incurred up to 11.45am (by legal time in the ACT) on 21 September 1999 may be indexed to account for inflation up to the September 1999 quarter. Expenditure after that time is not indexed.

    The reduced cost base is not indexed. The indexation method is not available for calculating a capital loss.

    See also:

    Market value substitution

    You substitute the market value for the first element of the cost base or reduced cost base if any of the following occured:

    • You didn't incur expenditure to acquire the asset.
    • Some or all of the expenditure you incurred can't be valued.
    • You didn't deal at arm's length with the previous owner in acquiring the asset.

    There are exceptions to this market value substitution rule – for example, where shares in a company, or units in a unit trust, are issued or allotted to you but you don't pay anything for them.

    See also:

    Recouped expenditure

    You don't include expenditure you subsequently recoup, such as an insurance pay-out you receive or an amount paid for by someone else – in the cost base and reduced cost of a CGT asset except to the extent you include the recouped amount 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 the settlement, the vendor agreed to pay $4,000 of the legal costs. John didn't claim any part of the $6,000 he paid in legal costs as a tax deduction.

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

    End of example

    Apportionment

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

    Apportionment is also required if you incur expenditure and only part of that expenditure relates to another element of the cost base and reduced cost base.

    Similarly, if a CGT event happens to only 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 loss from the CGT event.

    See also:

    Last modified: 28 Apr 2020QC 52175