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  • Elements of the cost base and reduced cost base

    The cost base of a capital gains tax (CGT) asset is made up of five elements:

    1. Money paid or property given for the CGT asset
    2. Incidental costs of acquiring the CGT asset or that relate to the CGT event
    3. Costs of owning the CGT asset
    4. Capital costs to increase or preserve the value of your asset or to install or move it
    5. Capital costs of preserving or defending your title or rights to your CGT asset

    You add these elements together to work out your cost base.

    An amount paid in a foreign currency that is included in an element of the cost base is converted to Australian currency at the time of the relevant transaction or event – for example, when the money is paid for the asset.

    If you're:

    • registered for goods and services tax (GST), the elements of the cost base are reduced by the amount of any GST net input tax credits included in the cost
    • not registered for GST, you don't make any adjustment – the GST is included in the cost base.

    Generally for assets acquired after 13 May 1997 the cost base does not include any costs you have claimed as a tax deduction, or have not claimed but can still claim because the period for amending the relevant income tax assessment has not ended – for example, capital works deductions for capital expenditure.

    First element: money paid or property given for the CGT asset

    This element is the money paid (or required to be paid) for the asset and the market value of property given (or required to be given) to acquire the asset.

    Second element: incidental costs of acquiring the CGT asset or that relate to the CGT event

    There are ten incidental costs you may have incurred in acquiring the asset or in relation to the CGT event that happens to it (including its disposal). They are:

    • remuneration for the services of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal adviser (you can include the cost of advice on the operation of the tax law as an incidental cost only if the advice was provided by a recognised tax adviser and you incurred the cost after 30 June 1989)
    • costs of transfer
    • stamp duty or other similar duty
    • costs of advertising or marketing (but not entertainment) to find a seller or buyer
    • costs relating to the making of any valuation or apportionment to determine your capital gain or loss
    • search fees relating to an asset (such as fees to check land titles and similar fees, but not travel costs to find an asset suitable for purchase)
    • the cost of a conveyancing kit (or a similar cost)
    • borrowing expenses (such as loan application fees and mortgage discharge fees)
    • expenditure that:
      • is incurred by the head company of a consolidated group to an entity that is not a member of the group, and
      • reasonably relates to a CGT asset held by the head company
      • is incurred because of a transaction that is between members of the group
       
    • expenditure incurred as a direct result of your ownership of a CGT asset ending (also known as termination or exit fees).

    Third element: costs of owning the CGT asset

    You don't include these costs if you acquired the asset before 21 August 1991.

    The costs of owning an asset include rates, land taxes, repairs and insurance premiums. You also include any non-deductible interest on loans used to finance:

    • the acquisition of a CGT asset
    • capital expenditure to increase an asset’s value.

    You can't:

    • include these costs in the cost base of collectables or personal use assets
    • index these costs
    • use them to work out a capital loss.

    See also:

    Fourth element: capital costs to increase or preserve the value of your asset or to install or move it

    The fourth element is capital costs you incurred:

    • for the purpose, or the expected effect, of increasing or preserving the asset’s value – for example, costs incurred in applying (successfully or unsuccessfully) for zoning changes
    • to install or move an asset.

    The fourth element does not include capital expenditure incurred in relation to goodwill, which may be deductible as a business-related cost.

    Fifth element: capital costs of preserving or defending your title or rights to your CGT asset

    This element is your capital expenditure to preserve or defend your ownership of, or rights to, the asset – for example, if you paid a call on shares.

    Reduced cost base elements

    When a capital gains tax (CGT) event happens to a CGT asset and you haven’t made a capital gain, you need the asset’s reduced cost base to work out whether you've made a capital loss.

    The reduced cost base of a CGT asset has the same five elements as the cost base, except for the third element:

    1. Money or property given for the asset
    2. Incidental costs of acquiring the CGT asset or that relate to the CGT event
    3. Balancing adjustment amount, that is, any amount that is assessable because of a balancing adjustment for the asset or that would be assessable if certain balancing adjustment relief were not available
    4. Capital costs to increase or preserve the value of your asset or to install or move it
    5. Capital costs of preserving or defending your title or rights to your asset.

    These elements are not indexed.

    You need to work out the amount for each element, then add them together to find out your reduced cost base for the relevant CGT asset.

    If you're:

    • registered for goods and services tax (GST), you reduce each element of the reduced cost base by the amount of any GST net input tax credits for that element
    • not registered for GST, you don't make any adjustment and the GST paid is included in the reduced cost base.

    The reduced cost base does not include any costs you have claimed as a tax deduction, or have not claimed but can still claim because the period for amending the relevant income tax assessment has not ended – for example, capital works deductions for capital expenditure.

    Example: Capital works deduction: effect on reduced cost base

    Danuta acquired a new income-producing asset on 28 September 2005 for $100,000. She sold it for $90,000 in November 2016. While she owned it she claimed capital works deductions of $7,500 for expenditure she incurred.

    Her capital loss is worked out as follows:

    Cost base

    $100,000

    less capital works deductions

    $7,500

    Reduced cost base

    $92,500

    less capital proceeds

    $90,000

    Capital loss

    $2,500

     

    End of example

    See also:

    Last modified: 17 Jul 2017QC 52174