Cost Base

The cost base of a CGT asset is the total of five elements: (1) the acquisition cost (purchase price), (2) incidental costs of acquisition and disposal (stamp duty, legal fees, brokerage, valuation fees), (3) costs of owning the asset that are not otherwise deductible (e.g., interest on a loan for a vacant block of land held purely for capital growth), (4) capital expenditure to increase or preserve the asset's value (renovations, improvements), and (5) capital costs of preserving or defending your title or rights to the asset.

For property, the cost base typically includes the purchase price, stamp duty, legal fees, building and pest inspection costs, any non-deductible borrowing costs, and capital improvements (such as a new kitchen or extension). It does not include deductible expenses like rental property repairs, property management fees, or depreciation you've claimed.

If you use the CGT discount method, you calculate the gain using the actual cost base. However, there's also an indexation method available for assets acquired before 21 September 1999 — this adjusts the cost base for inflation using the Consumer Price Index (CPI). You can choose whichever method gives the lower taxable gain. For assets acquired after this date, only the discount method is available.