Cost Base

Definition

The cost base of a property is the total of five elements: (1) acquisition cost (purchase price), (2) incidental costs of acquisition (stamp duty, legal fees, valuation fees), (3) costs of owning the asset that are not otherwise deductible (non-deductible holding costs during non-income-producing periods), (4) capital expenditure (renovations, improvements, not repairs), and (5) costs of disposal (agent's commission, legal fees on sale). A higher cost base means a lower capital gain.

Properly calculating your cost base is critical to minimise CGT. Investors who forget to include stamp duty, renovation costs, and selling fees in their cost base overpay CGT. Every dollar added to the cost base is a dollar less of taxable gain.

Purchase price $600,000 + stamp duty $22,000 + legal fees $2,500 + kitchen renovation $35,000 + selling agent commission $15,000 + conveyancer on sale $1,800 = cost base of $676,300. If sold for $780,000, the capital gain is only $103,700 (not $180,000).

ITAA 1997, Division 110

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