• What is the cost base?

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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 cost base of a CGT asset is generally the cost of the asset when you bought it; however, it also includes certain other costs associated with acquiring, holding and disposing of the asset.

    For most CGT events, you need the cost base of the CGT asset to work out whether or not you have made a capital gain. If you may have made a capital loss, you need the reduced cost base of the CGT asset for your calculation. The capital gain and capital loss columns in the table at appendix 1 indicate whether the cost base and reduced cost base of an asset are relevant for a CGT event.

    For those CGT events where the cost base and reduced cost base are not relevant, the explanation of the CGT event given in the table explains the amounts to use to work out your capital gain or capital loss. For example, if you enter into an agreement not to work in a particular industry for a set period of time, CGT event D1 specifies that you make a capital gain or capital loss by comparing the capital proceeds with the incidental costs (see Second element below).

    Cost base is not relevant when working out a capital gain from a depreciating asset.

    There are special rules for calculating the cost of a depreciating asset. For details, see CGT and depreciating assets and the Guide to depreciating assets 2006 (NAT 1996-6.2006).

    Elements of the cost base

    The cost base of a CGT asset is made up of five elements. You need to work out the amount for each element, then add them together to work out the cost base of your CGT asset.

    An amount paid in a foreign currency that is included in an element of the cost base is converted to Australian currency at the time of the relevant transaction or event. - for example, when the money is paid for the asset.

    If you are registered for GST, you reduce each element of the cost base of your asset by any related GST net input tax credits.

    First element: money or property given for the asset

    The 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 are included in the first element.

    Second element: incidental costs of acquiring the CGT asset or of the CGT event

    There are nine incidental costs you may have incurred in acquiring the asset or in relation to the CGT event that happens to it, including its disposal. They are:

    • remuneration for the services of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal adviser (you can only include the cost of advice concerning the operation of the tax law as an incidental cost if the advice was provided by a recognised tax adviser and you incurred the cost after 30 June 1989)
    • costs of transfer
    • stamp duty or other similar duty
    • costs of advertising or marketing (but not entertainment) to find a seller or buyer
    • costs relating to the making of any valuation or apportionment to determine your capital gain or capital loss.
    • search fees relating to an asset (such as fees to check land titles and similar fees, but not travel costs to find an asset suitable for purchase)
    • the cost of a conveyancing kit (or a similar cost)
    • borrowing expenses (such as loan application fees and mortgage discharge fees), and,
    • expenditure that:
      • is incurred by the head company of a consolidated group to an entity that is not a member of the group; and
      • reasonably relates to a CGT asset held by the head company; and
      • is incurred because of a transaction that is between members of the group.
       

    You do not include costs if you:

    • have claimed a tax deduction for them in any year, or
    • omitted to claim a deduction but can still claim it because the period for amending the relevant income tax assessment has not expired.

    Note
    For CGT events that happened before 1 July 2005, marketing costs, search fees, the cost of a conveyancing kit and borrowing expenses were not included. If the CGT event (such as sale or disposal) happens on or after 1 July 2005, these costs are included in this cost element irrespective of whether they were incurred before or after that date.

    Third element: costs of owning the asset

    The costs of owning an asset include rates, land taxes, repairs and insurance premiums. Non-deductible interest on borrowings to 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 are also third element costs.

    You do not include such costs if you acquired the asset before 21 August 1991. Nor do you include them if you:

    • have claimed a tax deduction for them in any year, or
    • omitted to claim a deduction but can still claim it because the period for amending the relevant income tax assessment has not expired.

    You cannot include them at all in the cost base of collectables or personal use assets.

    You cannot index these costs or use them to work out a capital loss. See Indexation of the cost base.

    Note
    For CGT events that happened before 1 July 2005, the third element was non-capital costs associated with owning the asset. The effect of the change is to broaden the range of costs that are included in this element, including some capital expenditure that may not come within the other elements of the cost base. If the CGT event (such as sale or disposal) happens on or after 1 July 2005, costs that fall within the new description of this element are included irrespective of whether they were incurred before or after that date.

    Fourth element: capital costs to increase or preserve the value of your asset or to install or move it

    The fourth element is capital costs you incurred for the purpose or the expected effect of increasing or preserving the asset's value - for example, costs incurred in applying (successfully or unsuccessfully) for zoning changes. It also includes capital costs you incurred that relate to installing or moving an asset. However, it does not include capital expenditure incurred in relation to goodwill which may be deductible as a business-related cost. For details see Guide to depreciating assets 2006.

    Note
    For CGT events that happened before 1 July 2005, the fourth element was capital costs associated with increasing the value of your asset that were reflected in the state or nature of the asset at the time of the CGT event - for example, if you paid for a carport to be built on your rental investment property. The effect of the change is to broaden the range of costs that are included in this element, including some expenditure that may not have been reflected in the state or nature of the asset when it was sold - for example, certain demolition costs. If the CGT event (such as sale or disposal) happens on or after 1 July 2005, costs that fall within the new description of this element are included irrespective of whether they were incurred before or after that date.

    Fifth element: capital costs of preserving or defending your ownership of or rights to your asset

    Capital expenses you incur to preserve or defend your ownership of or rights to the asset - for example, if you paid a call on shares - come under this element.

    Assets acquired after 13 May 1997

    If you acquired a CGT asset after 13 May 1997, the cost base of the asset also excludes:

    • any expenditure in the first, fourth or fifth element for which you have claimed a tax deduction in any year, or have omitted to claim but can still claim a deduction because the period for amending the relevant income tax assessment has not expired, and
    • heritage conservation expenditure and landcare and water facilities expenditure incurred after 12 November 1998 that give rise to a tax offset.

    Special rules apply for land and buildings. See Cost base adjustments for capital works deductions.

    Reversal of deduction: effect on cost base

    In some cases, a deduction you have claimed on a CGT asset can be partly or wholly 'reversed' - that is, part or all of the deduction may be included in your assessable income in the year the CGT event happens. In this case, you increase the cost base of the CGT asset by the amount you have to include in your assessable income.

    Indexation of the cost base

    If a CGT event happened to a CGT asset you acquired before 11.45am (by legal time in the ACT) on 21 September 1999 and owned for at least 12 months, you can use either the indexation method or the discount method to calculate your capital gain.

    If you use the indexation method, some of the cost base expenditure you incurred up to 11.45am (by legal time in the ACT) on 21 September 1999 may be indexed to account for inflation up to the September 1999 quarter. Only expenditure incurred before 11.45am (by legal time in the ACT) on 21 September 1999 may be indexed because changes to the law mean indexation was frozen at that date. See chapter 2 for more information on the indexation and discount methods.

    Last modified: 06 Oct 2009QC 18504