A T O home
Legal Database
Access the database 
Browse database
View last document
Quick access 
View legislation
View a document
Email Cross Reference Material Previous/Next Section Contents Previous/Next Result
Printable version

Income Tax Assessment Act 1997



Division 114 - Indexation of cost base  

SECTION 114-15  Cost base modifications  

 ITAA 36


There are a number of modifications to the *cost base of *CGT assets (see sections 112-20 and 112-35 and Subdivisions 112-B , 112-C and 112-D ). These affect the way indexation works.


 View history reference
If a cost base modification replaces an element of the *cost base of a *CGT asset with an amount, or includes an amount in such an element, you index the element or the amount as if expenditure equal to the amount had been incurred in the *quarter in which the modification occurred.


A trust is declared over a CGT asset (an example of CGT event E1). The first element of the cost base in the hands of the trustee is its market value. The trustee indexes that market value from the quarter in which the trust was declared.


 View history reference
A different rule applies if a cost base modification reduces the total *cost base of a *CGT asset.

Method statement

Step 1. 

Work out the *cost base (all elements) of the asset as at the *quarter in which the modification occurred.

Step 2. 

Subtract the amount of the reduction.

Step 3. 

The Step 2 amount forms a new first element of your *cost base, and is later indexed as if you had incurred expenditure equal to that amount in the *quarter in which the modification occurred.


Margaret receives a capital payment of $1,000 for shares (an example of CGT event G1). The first element of her cost base is $10,250 (indexed to the quarter in which the payment was made) and the second element (similarly indexed) is $210. Add those amounts ($10,460) and subtract the $1,000. Her new first element of the cost base is $9,460. There are no other elements at that time.


 View history reference
Despite subsection (2), there are different rules for the exercise of an option or the conversion of a *convertible interest.

Exercise of options


 View history reference
The amount you paid for the option, and the amount you paid to exercise it, are indexed from the *quarter in which the liabilities to pay the amounts were incurred.


On 1 April 1997, Robyn grants Andrew an option to buy land she owns. The option fee is $10,000, and the option is to buy the land on 30 June 1998 for $100,000.

Andrew exercises the option and acquires the land on 30 June 1998. To work out whether there is a capital gain when Andrew disposes of the land, indexation is available if the land is disposed of 12 months or more after its acquisition.

The $10,000 option fee can be indexed from 1 April 1997 (when the liability to pay it was incurred). The $100,000 exercise price can be indexed from 30 June 1998 (when the liability to pay the price was incurred).

Convertible interests


 View history reference
If you *acquire *shares in a company or units in a unit trust by converting a *convertible interest, the amount paid for the convertible interest, and the amount paid to convert it, are indexed from the *quarter in which the liabilities to pay the amounts were incurred.


If shares or units are acquired as a result of the exercise of the option or the conversion of the convertible interest, and an amount is paid to the company or trust on the shares or units after the day of acquisition, that amount is indexed from the time it is paid: see subsection 960-275(3) .


This information is provided by CCH Australia Limited. View the disclaimer and notice of copyright.
Top of page
More information on page