Cost Base
The total cost of acquiring and holding an asset, used to calculate the capital gain or loss on disposal.
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 that date and disposed of before 1 July 2027, only the discount method is available. From 1 July 2027 the general 50% discount is abolished and CPI cost-base indexation returns as the standard mechanism for assets held 12 months or more, so the indexed cost base becomes the figure your records need to support.
How it works
The cost base of a CGT asset is built from five separate elements added together: the original acquisition cost, incidental costs of buying and selling (things like stamp duty, legal fees, and brokerage), non-deductible ownership costs (such as interest on a loan for vacant land held purely for capital growth), capital expenditure that improves or preserves the asset's value, and capital costs incurred defending your title to the asset. None of these are optional line items you can pick and choose — each element that genuinely applies to the asset gets included, and together they determine how much of the eventual sale proceeds counts as taxable gain rather than a return of capital already spent.
In practice, building an accurate cost base means keeping every receipt and invoice connected to an asset from the day you acquire it — for property, that's the purchase contract, stamp duty assessment, conveyancing fees, building and pest inspection costs, and receipts for any capital improvements like a new kitchen or an added room. This record-keeping only pays off years later, at the point of sale, when the cost base is subtracted from the sale proceeds to work out the gain — a gap in records at that point usually means understating the cost base and overstating (and overpaying tax on) the gain.
A common mistake is including expenses in the cost base that have already been claimed as a tax deduction elsewhere — rental property repairs, property management fees, and depreciation already claimed reduce the cost base or are excluded from it, because claiming them twice would double-dip. For assets bought before 21 September 1999, there's also a choice between the discount method and the older indexation method, which adjusts the cost base for inflation using the CPI instead of applying the 50% discount — whichever method produces the lower taxable gain can be used, but only for assets that predate that cutoff. That cutoff stops mattering from 1 July 2027: the general 50% discount is abolished for CGT events from that date, and CPI cost-base indexation returns as the standard mechanism for assets held 12 months or more, whenever they were acquired.
Example: building a cost base for an investment property
You buy an investment property for $500,000, pay $20,000 in stamp duty and legal fees, and later spend $30,000 renovating the kitchen and bathroom — all capital improvements rather than repairs.
Your cost base is $500,000 + $20,000 + $30,000 = $550,000. If you later sell the property for $650,000, the capital gain before any discount is $650,000 − $550,000 = $100,000, not the full $150,000 difference from the original purchase price alone.
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Capital Gains Tax (CGT)
Tax on the profit made from selling or disposing of an asset, such as property, shares, or cryptocurrency.
50% CGT Discount
A 50% reduction in capital gains for individuals and trusts who held the asset for at least 12 months before disposal.
Capital Loss
A loss made when you dispose of a CGT asset for less than its cost base — can offset capital gains but not other income.
CGT Event
A specific event that triggers a capital gains tax obligation, such as selling, gifting, or losing a CGT asset.
Stamp Duty (Transfer Duty)
A state/territory tax on property purchases, calculated as a percentage of the property value — rates vary by jurisdiction.