What is the reduced cost base?
When a CGT event happens to a CGT asset and you haven’t made a capital gain, you need the asset’s reduced cost base to work out whether you have made a capital loss. Remember, you can use a capital loss to reduce capital gains only, you cannot use it to reduce other income.
Elements of the reduced cost base
The reduced cost base of a CGT asset has the same five elements as the cost base, except for the third element:
money or property given for the asset
incidental costs of acquiring the CGT asset or that relate to the CGT event
balancing adjustment amount (any amount that is assessable because of a balancing adjustment for the asset or that would be assessable if certain balancing adjustment relief were not available)
capital costs to increase or preserve the value of your asset or to install or move it
capital costs of preserving or defending your title or rights to your asset.
These elements are not indexed.
You need to work out the amount for each element, then add the amounts together to find out your reduced cost base for the relevant CGT asset.
The Capital Gains worksheet in HandiTax can be used to calculate the reduced cost base in the case of a loss.
Example: Taxpayer had purchased shares for $20,000, the amount received on the disposal of the asset was $10,000.
Note: Reduced cost base only applies in the case of a capital loss. If the taxpayer made a gain from selling assets, inputting a reduced cost base does not make any difference when calculating the capital gain.
