# The indexation method

Last updated 3 March 2016

You can use the indexation method to calculate your capital gain if:

• a CGT event happens to an asset you acquired before 11.45am (by legal time in the ACT) on 21 September 1999, and
• you owned the asset for 12 months or more.

Under this method, you increase each amount included in an element of the cost base (other than those in the third element – non-capital costs of ownership) by an indexation factor.

The indexation factor is worked out using the consumer price index (CPI) at appendix 2.

If the CGT event happened on or after 11.45am (by legal time in the ACT) on 21 September 1999 you can only index the elements of your cost base up to 30 September 1999. You use this formula:

Indexation factor = CPI for quarter ending 30.9.99 (123.4) ÷ CPI for quarter in which expenditure was incurred

If the CGT event happened before 11.45am (by legal time in the ACT) on 21 September 1999, you use this formula:

Indexation factor = CPI for quarter when CGT event happened ÷ CPI for quarter in which expenditure was incurred

Work out the indexation factor to three decimal places, rounding up if the fourth decimal place is five or more.

For most assets, you index expenditure from the date you incur it, even if you do not pay some of the expenditure until a later time. However, there is an exception for partly paid shares or units acquired on or after 16 August 1989. If the company or trust later makes a call on the shares or units, you use the CPI for the quarter in which you made that later payment.

There are some exceptions to the requirement that you must have owned an asset for at least 12 months for indexation to apply. For example, you can use the indexation method:

• if you acquire a CGT asset as a legal personal representative or a beneficiary of a deceased estate. The 12-month requirement is satisfied if the deceased acquired the asset 12 months (or more) before you disposed of it, or
• if you acquired an asset as the result of a marriage breakdown. You will satisfy the 12-month requirement if the combined period your spouse and you owned the asset is more than 12 months.

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