In some cases, the general rules for calculating the cost base and reduced cost base have to be modified. For example, the market value may be substituted for the first element of the cost base and reduced cost base if:
- you did not incur expenditure to acquire the asset
- some or all of the expenditure you incurred cannot be valued, or
- you did not deal at arm's length with the vendor in acquiring the asset.
This is known as the market value substitution rule for cost base and reduced cost base.
You do not include expenditure you subsequently recoup in the cost base and reduced cost of a CGT asset unless the recouped amount is included in your assessable income. Recouped amounts, such as an insurance pay-out you receive or an amount paid for by someone else, are not included in the cost base and reduced cost base unless those amounts are included in your assessable income.
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 the $6,000 he incurred in the cost base.End of example
If you acquire a CGT asset and only part of the expenditure relates to the acquisition of the CGT asset, you can only include that part of the expenditure that is reasonably attributable to the acquisition of the asset in its cost base and 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 only to part of your CGT asset, you generally apportion the asset's cost base and reduced cost base to work out the capital gain or capital loss from the CGT event.