Property, CGT & Negative Gearing
Cost Base
The total amount used to work out your capital gain (or loss) when a CGT asset is sold - broadly, what the asset cost you, not just the original purchase price. A higher cost base means a smaller capital gain, so getting it right (and not missing eligible costs) directly affects how much tax you pay.
The five elements
The ATO breaks cost base into five elements, added together:
- Acquisition cost - what you actually paid for the asset.
- Incidental costs - costs of buying or selling it, like stamp duty, legal fees, agent's commission, or valuation fees.
- Costs of ownership - things like council rates, land tax, insurance, and non-deductible loan interest (only applies to assets acquired after 20 August 1991, and only if you haven't already claimed these as a tax deduction elsewhere).
- Capital improvement costs - money spent increasing or preserving the asset's value.
- Costs of preserving or defending title - e.g. legal costs to defend your ownership of the asset.
One important rule that cuts across all of this: you can't double-dip. If you've already claimed something as a tax deduction (like a capital works deduction on a rental property, or a deductible repair), you can't also add it to the cost base.
Example: a house
Say you buy an investment property for $600,000, paying $30,000 in stamp duty and legal fees. That's already a $630,000 cost base (elements 1 and 2) before you've done anything else to the property.
A few years later, you add a second bathroom for $25,000. Because this is a capital improvement - it genuinely adds to the property, not just maintains it - this gets added to the cost base too (element 4), bringing it to $655,000. Compare that to something like repainting the walls or fixing a leaking tap: these are generally repairs, not improvements, and if the property is income-producing, they're usually claimed as an immediate tax deduction instead - which means they don't also get added to the cost base. The distinction matters: improvements build your cost base (reducing future CGT); routine repairs typically reduce this year's tax bill instead.
Example: shares
You buy 1,000 shares at $20 each, paying $50 brokerage. Your cost base is $20,050 (elements 1 and 2). When you eventually sell, any brokerage paid on the sale also gets added in as an incidental cost, further reducing your taxable gain. If you're in a dividend reinvestment plan, each parcel of shares acquired through reinvested dividends gets its own separate cost base too.
A quick aside: Indexed Cost Base
You'll sometimes see the term "indexed cost base" - this is simply your cost base adjusted upward for inflation (based on CPI), rather than left at its raw dollar value. It's the mechanism behind the CGT Indexation Method: instead of taxing the full nominal gain, only the gain above and beyond that inflation adjustment is assessed. This applied to assets bought before 21 September 1999, and applies again more broadly from 1 July 2027 under the current CGT reforms.
Primary source: Cost base of assets - Australian Taxation Office.
Related terms
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