When a 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 have made a capital loss. (Remember, you can only use a capital loss to reduce a capital gain - you cannot use it to reduce other income.)
Elements of the reduced cost base
The reduced cost base of a CGT asset has the same five elements as the cost base, except for the third element:
- money or property given for the asset
- incidental costs of the CGT event or of acquiring the CGT asset
- balancing adjustment amount - 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
- capital costs to increase or preserve the value of your asset or to install or move it
- 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 the amounts together to find out your reduced cost base for the relevant CGT asset.
If you are registered for GST, you reduce each element of the reduced cost base of the asset by the amount of any GST net input tax credits in relation to that element. If you are not registered for GST, you do not 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 incurred for which you have claimed a tax deduction or have omitted to claim, but can still claim, a deduction because the period for amending the relevant income tax assessment has not expired - 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 2003 for $100,000. She sold it for $90,000 in November 2006. During the period she owned it, she claimed capital works deductions of $7,500 for expenditure she incurred. Her capital loss is worked out as follows:
less capital works deductions
Reduced cost base
less capital proceeds
End of example