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  • Three methods of calculating a capital gain

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    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    The three methods of calculating a capital gain are explained and compared in the table below.

    The basic method of working out a capital gain is the 'other' method. This is the method you use for any CGT asset you have bought and sold within 12 months (that is, when neither the indexation nor discount method applies). As a general rule, to calculate your capital gain using the 'other' method, you subtract your cost base from your capital proceeds.

    If you acquired your asset before 21 September 1999 and owned it for 12 months or more, you can use the indexation method to calculate your capital gain. This method allows you to increase the value of your cost base (and reduce your capital gain) by applying an indexation factor based on increases in the Consumer Price Index (CPI) up to September 1999.

    If you use the discount method, you do not apply the indexation factor to the cost base, but you may be able to reduce your capital gain by the CGT discount (50% for individuals and trusts, or 33.3% for complying superannuation funds). Generally, the discount method does not apply to companies.

    If you held your CGT asset for 12 months or more, you may be able to choose either the discount method or the indexation method to calculate your capital gain, whichever gives you the best result.

    Capital gain calculation methods

     

    Indexation method

    Discount method

    'Other' method

    Description of method

    Allows you to increase the cost base by applying an indexation factor based on CPI up to September 1999

    Allows you to discount your capital gain

    Basic method of subtracting the cost base from the capital proceeds

    When to use each method

    Use for an asset held for 12 months or more, if it produces a better result than the discount method. Only for use with assets acquired before 21 September 1999

    Use for an asset held for 12 months or more, if it produces a better result than the indexation method

    Use when neither the indexation nor the discount method apply (for example, if you have bought and sold an asset within 12 months)

    How to calculate your capital gain using each method

    Apply the relevant indexation factor (see CPI table at appendix 1) then subtract the indexed cost base from the capital proceeds (see worked example for Val)

    Subtract the cost base from the capital proceeds, deduct any capital losses, then reduce by the relevant discount percentage (see worked example for Val)

    Subtract the cost base (or the amount specified by the relevant CGT event) from the capital proceeds (see worked example for Marie-Anne)

    Last modified: 31 Aug 2010QC 16195