CGT - Consumer Price Indexation Factors

1. When does CGT apply from?
2. How does the indexation method work and when did it cease?
3. Consumer Price Indexation Factors

Capital gains tax (CGT) generally does not apply to assets acquired before 20 September 1985 (pre CGT assets).

 

However in particular it should be remembered that CGT event K6 can result in capital gains (but not capital losses) if certain CGT events happen to pre-CGT shares in a ‘private’ company or pre-CGT interests in a ‘private’ trust where the market value of its post-CGT property is at least 75% of its net value (‘the 75% test’). 

 

Refer to TR 2004/18 below in the links.

 

 

Use the indexation method to calculate your capital gain if:

 

> a CGT event happens to an asset you acquired before 11.45am (AEST) on 21 September 1999, and

 

> you owned the asset for 12 months or more (excluding day of purchase and day of sale).

 

If you are not a company and you meet the 2 conditions above and you wish to use the indexation method, you must choose to do so, otherwise the discount method will apply. If you are a company (other than a listed investment company) and the capital gain meets the above conditions, you must use the indexation method to calculate the capital gain.  The discount method does not apply to a company.

 

Under the indexation method, you increase each amount included in an element of the cost base, (other than those in the third element - costs of owning the asset) by an indexation factor.

 

The indexation factor is worked out using the consumer price index (CPI).

 

If the CGT event happened on or after 11.45am (by legal time in the ACT) on 21 September 1999 you can only index the elements of your cost base up to 30 September 1999. You use this formula:

 

Indexation factor =	CPI for quarter ending 30.9.99 (123.4)
	CPI for quarter in which expenditure was incurred

 

If the CGT event happened before 11.45am (by legal time in the ACT) on 21 September 1999, you use this formula:

 

Indexation factor =	CPI for quarter when CGT event happened
	CPI for quarter in which expenditure was incurred

 

Work out the indexation factor to three decimal places, rounding up if the fourth decimal place is five or more.