The cost base of a CGT asset is made up of the following 5 elements:
- money paid or the market value of any other property given to acquire the asset
- incidental costs of acquiring the asset
- cost of owning the asset
- expenditure that increases or preserves the value of the asset or that relates to installing or moving the asset
- expenditure incurred to establish, preserve or defend title or rights to the asset.
Incidental costs include but are not limited to:
- professional service fees e.g. for surveyors, auctioneers, accountants, brokers, agents, consultants or legal advisers
- costs of transfer
- stamp duty
- advertising/marketing costs to find a seller/buyer
- valuation fees
- search fees to check land titles
- cost of a conveyance kit
- certain borrowing expenses e.g. loan application fees and mortgage discharge fees
- termination fees.
Incidental costs of purchasing a CGT asset are considered capital costs and as such, are included in the cost base of the asset for CGT purposes. Costs which are deductible, such as interest on a margin loan, should not be included in the cost base of an asset.
Where an investor has claimed a tax deduction or intends to claim a tax deduction for expenditure incurred on incidental costs, these costs cannot be included in the cost base of the asset.
Where incidental costs are included in the cost base of a CGT asset, upon disposal the capital gain will be smaller or the capital loss greater. Where incidental costs are not included in the cost base of a CGT asset, upon disposal the capital gain will be greater or the capital loss smaller.
Yes, incidental costs can be indexed.
The indexation method allows a taxpayer to increase the incidental costs included in the cost base by the relevant indexation factor.
Please note, only cost base expenditure incurred before 11.45am (by legal time in the ACT) on 21 September 1999 may be indexed, because indexation was frozen at that date.
We show some incidental costs as a deductible expense in an investor’s Tax Report. This may include any stamp duty paid on the purchase of certain assets. Brokerage may be incurred on the purchase or disposal of a CGT asset. We report this as an increase in cost base or reduction in capital proceeds respectively.
Any stamp duty which has been incurred may need to be taken into account when determining your taxable position.
As not all investor’s circumstances are the same, we strongly recommend investors seek independent taxation advice to determine whether this treatment is appropriate.