Tax Law Improvement Act (No. 1) 1998 (46 of 1998)

Schedule 1   Amendment of the Income Tax Assessment Act 1997

1   Part 3-1 Division 110

Division 110 - Cost base and reduced cost base

Table of Subdivisions

Guide to Division 110

110-A Cost base

110-B Reduced cost base

Guide to Division 110

110-1 What this Division is about

This Division tells you how to work out the cost base and reduced cost base of a CGT asset. You need to know these to work out if you make a capital gain or loss from most CGT events.

Table of sections

110-5 Modifications to general rules

110-10 Rules about cost base not relevant for some CGT events

110-5 Modifications to general rules

After you have read the general rules, you need to know if there are any modifications to them. Division 112 lists each situation that may result in a modification and tells you where you can find the detailed provisions for each situation.

110-10 Rules about cost base not relevant for some CGT events

This table sets out each CGT event for which you do not need to know what the cost base or reduced cost base of a CGT asset is to work out if you make a capital gain or loss. The section describing the event tells you what amount is relevant instead.

Subdivision 110-A - Cost base

Table of sections

110-25 General rules about cost base

110-30 Cost base of partnership assets

110-35 Incidental costs

110-25 General rules about cost base

(1) The cost base of a *CGT asset consists of 5 elements. It can also include indexation of those elements (except the third one).

To find out how to index expenditure: see Division 114.

Note: You need to keep records of each element: see Division 121.

5 elements of the cost base

(2) The first element is the total of:

(a) the money you paid, or are required to pay, in respect of *acquiring it; and

(b) the market value of any other property you gave, or are required to give, in respect of acquiring it (worked out as at the time of the acquisition).

Note 1: There are special rules for working out when you are required to pay money or give other property: see section 103-15.

Note 2: This element is replaced with another amount in many situations: see Division 112.

(3) The second element is the *incidental costs you incurred:

(a) to *acquire the *CGT asset; and

(b) that relate to the *CGT event.

These costs can include giving property: see section 103-5.

Note: There is one situation to do with options in which the incidental costs relating to the CGT event are modified: see section 112-85.

(4) The third element is the non-capital costs of ownership of the *CGT asset you incurred (but only if you *acquired the asset after 20 August 1991). These costs include:

(a) interest on money you borrowed to acquire the asset; and

(b) costs of maintaining, repairing or insuring it; and

(c) rates or land tax, if the asset is land; and

(d) interest on money you borrowed to refinance the money you borrowed to acquire the asset; and

(e) interest on money you borrowed to finance the capital expenditure you incurred to increase the asset's value.

These costs can include giving property: see section 103-5.

Note: This element does not apply to personal use assets or collectables: see sections 108-17 and 108-30.

(5) The fourth element is capital expenditure you incurred to increase the asset's value. However, the expenditure must be reflected in the state or nature of the asset at the time of the *CGT event. (The expenditure can include giving property: see section 103-5.)

Note: There are 3 situations involving leases in which this element is modified: see section 112-80.

(6) The fifth element is capital expenditure that you incurred to establish, preserve or defend your title to the asset, or a right over the asset. (The expenditure can include giving property: see section 103-5.)

What does not form part of the cost base

(7) Expenditure does not form part of the second or third element of the cost base to the extent that you have deducted or can deduct it.

(8) Expenditure does not form part of any element of the cost base to the extent of any amount you have received as *recoupment of it, except so far as the amount is included in your assessable income.

110-30 Cost base of partnership assets

(1) Expenditure does not form part of the second or third element of the cost base for your interest in a *CGT asset of a partnership to the extent that you, or a partnership in which you are or were a partner, have deducted or can deduct it.

(2) Expenditure does not form part of any element of the cost base for your interest in a *CGT asset of a partnership to the extent of any amount that you, or a partnership in which you are or were a partner, have received as *recoupment of it, except so far as the amount is included in your assessable income or the partnership's assessable income.

110-35 Incidental costs

(1) There are 5 incidental costs you may have incurred:

(a) to *acquire a *CGT asset; or

(b) that relate to a *CGT event.

(2) The first is remuneration for the services of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal adviser. However, remuneration for professional advice about the operation of this Act is not included unless it is provided by a *recognised tax adviser.

Note: The requirement in subsection (2) that the professional advice be provided by a recognised tax adviser does not apply to expenditure incurred before 1 July 1989: see section 110-35 of the Income Tax (Transitional Provisions) Act 1997.

(3) The second is costs of transfer.

(4) The third is stamp duty or other similar duty.

(5) The fourth is:

(a) if you *acquired a *CGT asset - costs of advertising to find a seller; or

(b) if a *CGT event happened - costs of advertising to find a buyer.

(6) The fifth is costs relating to the making of any valuation or apportionment for the purposes of this Part or Part 3-3.

Subdivision 110-B - Reduced cost base

Table of sections

110-55 General rules about reduced cost base

110-60 Reduced cost base for partnership assets

110-55 General rules about reduced cost base

(1) The reduced cost base of a *CGT asset consists of 5 elements. It does not include indexation of those elements.

5 elements of the reduced cost base

(2) All of the elements (except the third one) of the reduced cost base of a *CGT asset are the same as those for the *cost base.

(3) The third element is:

(a) any amount included in your assessable income for any income year because of a balancing adjustment for the asset; and

(b) any amount that would have been so included apart from any of these (which provide relief from including a balancing charge in your assessable income):

(i) section 42-285 or 42-290; or

(ii) subsection 59(2A) or (2D) of the Income Tax Assessment Act 1936.

What does not form part of the reduced cost base

(4) The reduced cost base does not include an amount to the extent that you have deducted or can deduct it (including because of a balancing adjustment) or could have deducted apart from paragraph 43-70(2)(h).

Note: That paragraph excludes from deductibility under Division 43 expenditure that qualifies for the heritage conservation rebate.

(5) The reduced cost base does not include an amount that is taken into account under paragraph 42-175(b).

Note: That paragraph covers reductions in the undeducted cost of plant.

(6) Expenditure does not form part of the reduced cost base to the extent of any amounts you have received as *recoupment of it. However, this rule does not apply to the extent that the amounts are included in your assessable income.

(7) If your *CGT asset is a *share in a company, its reduced cost base is reduced by the amount calculated under subsection (8) if:

(a) the company makes a distribution to you under an *arrangement; and

(b) an amount (the attributable amount ) representing the distribution or part of it is reasonably attributable to profits derived by the company before you *acquired the share; and

(c) you are entitled to a rebate of income tax under section 46 or 46A of the Income Tax Assessment Act 1936 (the dividend rebate ) on the part of the distribution that is a *dividend (the dividend amount ); and

(d) you were a *controller (for CGT purposes) of the company, or an *associate of such a controller, when the arrangement was made or carried out.

(8) The amount of the reduction is:

Attributable amount * (Amount of dividend rebate / (Dividend amount * General company tax rate))

110-60 Reduced cost base for partnership assets

(1) The third element of an entity's reduced cost base for its interest in a *CGT asset of a partnership is the entity's share of:

(a) an amount included in the assessable income of the partnership because of a balancing adjustment for the asset; and

(b) any amount that would have been so included apart from any of these (which provide relief from including a balancing charge in your assessable income):

(i) section 42-285 or 42-290; or

(ii) subsection 59(2A) or (2D) of the Income Tax Assessment Act 1936;

calculated according to the entity's share in the partnership net income or net loss.

(2) Expenditure does not form part of an entity's reduced cost base for its interest in a *CGT asset of a partnership to the extent that a partnership in which the entity is or was a partner has deducted or can deduct it (including because of a balancing adjustment), or could have deducted it apart from paragraph 43-70(2)(h).

(3) Expenditure does not form part of an entity's reduced cost base for its interest in a *CGT asset of a partnership to the extent that a partnership in which the entity is or was a partner has taken the expenditure into account under paragraph 42-175(b).

(4) Expenditure does not form part of an entity's reduced cost base for its interest in a *CGT asset of a partnership to the extent of any amounts that a partnership in which the entity is or was a partner has received as *recoupment of it and that are not included in the assessable income of the partnership.

(5) If a *CGT asset of a partnership is a *share in a company, an entity's reduced cost base for its interest in the share is reduced by the amount calculated under subsection (7) if:

(a) the company makes a distribution to the partnership under an *arrangement; and

(b) an amount (the attributable amount ) representing the distribution or part of it is reasonably attributable to profits derived by the company before the partnership *acquired the share; and

(c) the partnership is entitled to a rebate of income tax under section 46 or 46A of the Income Tax Assessment Act 1936 (the dividend rebate ) on the part of the distribution that is a *dividend (the dividend amount ); and

(d) a partner in the partnership was a *controller (for CGT purposes) of the company, or an *associate of such a controller, when the arrangement was made or carried out.

(6) The amount of the reduction is:

Attributable amount * (The entity's share of the amount of dividend rebate / (Dividend amount * General company tax rate))