The cost base of a CGT asset is made up of 5 elements. You need to add together all these elements to work out your cost base for each CGT asset.
Where relevant, the elements of the cost base are reduced by any GST included in the price.
First element: money paid for the asset
This element includes 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.
2nd element: incidental costs of the CGT event or of acquiring the CGT asset
Examples of these incidental costs include agents commission, the cost of advertising to find a seller or buyer, stamp duty and fees paid for professional services (for example, to an accountant, professional tax adviser, valuer or lawyer).
You can include expenditure for advice concerning the operation of the tax law as an incidental cost only if it was provided by a recognised professional tax adviser and you incurred the expenditure after 30 June 1989.
Do not include expenditure for which you have or may have a deduction for income tax purposes in any year.
3rd element: non-capital costs associated with owning the asset
Examples of these non-capital costs include interest, rates, land taxes, repairs and insurance premiums. They also include non-deductible interest on borrowings to re-finance a loan used to acquire a CGT asset and on loans used to finance capital expenditure you incur to increase an asset's value.
You can include non-capital costs of ownership only in the cost base of assets acquired on or after 21 August 1991. You cannot include these non-capital costs in the cost base of any collectables or personal use assets.
These costs cannot be indexed or used to work out a capital loss. Do not include expenditure for which you have or may have a deduction for income tax purposes in any year.
4th element: capital costs associated with increasing the value of your asset
This element is relevant only if the expenditure is reflected in the state or nature of the asset at the time of the CGT event-for example, if you paid for a car port to be built on your rental investment property.
5th element: capital costs to preserve or defend your title or rights to your asset
This element includes capital expenditure you incur to preserve or defend your title or rights to the asset-for example, if you paid a call on shares.
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 capital gains cost base of the CGT asset is increased by the amount you have to include in your assessable income.
Any expenditure you recoup does not form part of the cost base of a CGT asset except if the recouped amount is 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
Assets acquired after 13 May 1997
If you acquired a CGT asset after 13 May 1997, the cost base of the asset does not include:
- any expenditure on the asset that has been (or can be) allowed as an income tax deduction; this applies to all elements of the cost base, or
- heritage conservation expenditure and landcare and water facilities expenditure incurred after 12 November 1998 that give rise to a tax offset.
Note: Special rules for land
Special rules apply if you acquired land on or before 13 May 1997 but you incurred expenditure between this date and 1 July 1999 on constructing a building that is treated as a separate asset from the land for CGT purposes. If you think this may be relevant to you, contact the Australian Taxation Office (ATO) for more information.
Example: Special building write-off deduction
Zoran acquired a rental property on 1 July 1997 for $200,000. Before disposing of the property on 30 June 2002, he had claimed $10,000 in special building write-off deductions.
At the time of disposal, the cost base of the property was $210,250. Zoran must reduce the cost base of the property by $10,000 to $200,250.End of example