The cost base of a CGT asset is generally the cost of the asset when you bought it. 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 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 columns labelled ‘Capital gain’ and ‘Capital loss’ in the tables at appendix 1 indicate whether the cost base and reduced cost base of an asset are relevant for a CGT event.
If they are not relevant, the same columns in the tables explain how to work out your capital gain or 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 calculate your capital gain or capital loss by comparing the capital proceeds with the incidental costs.
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.
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Elements of the cost base
The cost base of a CGT asset is made up of five elements:
- money or property given for the asset
- incidental costs of acquiring the CGT asset or that relate to the CGT event
- costs of owning the asset
- capital costs to increase or preserve the value of your asset or to install or move it
- capital costs of preserving or defending your ownership of or rights to your asset.
You need to work out the amount for each element, then add them together to work out the cost base of your CGT asset.
If there is an amount paid in a foreign currency that is part of the cost base you should convert it to Australian currency at the time of the relevant transaction or event.
If you are registered for GST, reduce each element of the cost base of your asset by any related GST net input tax credits. If you are not registered for GST, you do not make any adjustments as the GST is included in the cost base.
First element: money or property given for the asset
Include in the first element:
- the money paid (or required to be paid) for the asset
- the market value of property given (or required to be given) to acquire the asset.
Second element: incidental costs of acquiring the CGT asset or that relate to the CGT event
There are 10 incidental costs you may have incurred in acquiring the asset or for 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 include the cost of advice concerning the operation of the tax law as an incidental cost only 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)
- expenditure that
- is incurred by the head company of a consolidated group to an entity that is not a member of the group
- reasonably relates to a CGT asset held by the head company
- is incurred because of a transaction that is between members of the group
- expenditure that is incurred as a direct result of your ownership of a CGT asset ending (also known as termination, exit or similar fees).
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.
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 income 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.
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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. But, it does not include capital expenditure incurred for goodwill, which may be deductible as a business-related cost.
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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 come under this element, for example, you paid a call on shares.
Other adjustments to the cost base
- Assets acquired after 13 May 1997
If you acquired a CGT asset after 13 May 1997, the cost base of the asset excludes:- any expenditure in the first, fourth or fifth element for which you have claimed a tax deduction in any income year, or have omitted to claim but can still claim as a deduction because the period for amending the relevant income tax assessment has not expired
- 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’. This means that part or all of the deduction may be included in your assessable income in the income 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, 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 this time may be indexed to account for inflation up to the September 1999 quarter. Only expenditure incurred before this time may be indexed because changes to the law mean indexation was frozen at that date.
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