Taxation Ruling

IT 2362

Income tax : capital gains : commencement of indexation of acquisition cost of assets

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  This ruling contains references to repealed provisions, some of which may have been rewritten. The ruling still has effect. Paragraph 32 in TR 2006/10 provides further guidance on the status and binding effect of public rulings where the law has been repealed or repealed and rewritten. The legislative references at the end of the ruling indicate the repealed provisions and, where applicable, the rewritten provisions.

FOI status:

PREAMBLE

Where an asset subject to the capital gains provisions is disposed of more than 12 months after its acquisition, the cost base of the asset is adjusted for inflation before calculating the capital gain. The indexation adjustment is made by reference to movements in the All Groups Consumer Price Index published quarterly by the Australian Statistician.

2. Advice was recently sought as to the method of calculating the indexation factor to be used where an asset is acquired with vendor finance. The question was whether in making inflation adjustments for periods before the full cost price has been paid, the full price is taken into account in the calculation or a lesser amount.

RULING

3. By virtue of sub-section 160ZJ(5) of the Income Tax Assessment Act 1936, the indexation of the consideration paid or given for an asset commences in the quarter of the year in which the liability to pay or give the consideration for the asset arises. Where the liability to pay the consideration for an asset that is subject to vendor finance arises at the time of the acquisition of the asset, the indexing factor is to be calculated for the whole of the consideration from that time even though, under the finance arrangements, part of the consideration is not actually paid until some time in the future. Symmetrically with this, the indexation period ends in the quarter in which the asset is subsequently sold, even though part of the consideration for its sale may, under finance arrangements made then, be payable at a later time.

COMMISSIONER OF TAXATION
18 September 1986

References

ATO references:
NO L85/6-7

Date of effect:
Immediate

Subject References:
CAPITAL GAINS - COST BASE
INDEXATION
INSTALMENT SALES

Legislative References:
160ZJ