FAQ – What is base cost?

Base cost is the amount against which any proceeds upon disposal are compared in order to determine whether a capital gain or loss has been realised.

 
For assets held on the valuation date (1 October 2001) that were acquired before that date  base cost is equal to the “valuation date value” of the asset plus any further qualifying costs incurred on or after that date (paragraphs 20 and 25 of the Eighth Schedule).
 
For assets acquired on or after the valuation date the base cost of the asset generally comprises the costs incurred in acquiring the asset and improving it. Paragraph 20 of the Eighth Schedule sets out what costs qualify to be part of base cost.
 
An asset can also be deemed to be acquired for a base cost equal to the market value of the asset at the time of acquisition (for example, if the asset is acquired by donation or for a non-arm’s length price from a connected person (paragraph 38 of the Eighth Schedule).
 
Base cost includes those costs actually incurred in acquiring, enhancing or disposing of an asset that are not allowable as a deduction from income. Thus, the base cost of trading stock would generally be nil because its cost would have been deducted from income.
 
The following are included in the base cost of an asset:
  • Acquisition cost
  • These costs actually incurred in acquiring or creating an asset. For example, this could include the cost of purchasing an asset or the cost of erecting a building. The expenditure should not have been claimed against income.

  • Incidental costs of acquisition and disposal
  • Any of the following costs actually incurred as expenditure directly related to the acquisition or disposal of an asset.

  • The remuneration of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal advisor, for services rendered
  • Transfer costs
  • Stamp duty, transfer duty or similar duty(for example, securities transfer tax)
  • Advertising costs to find a seller or to find a buyer
  • The cost of moving that asset from one location to another
  • The cost of installing an asset, including the cost of foundations and supporting structures
  • Donations tax paid in certain circumstances
  • If that asset was acquired or disposed of by the exercise of an option (other than the exercise of an option acquired before the valuation date), the expenditure actually incurred on the acquisition of the option
  • Value-added tax not allowed as an input deduction (section 23C)
  • Capital costs of establishing, maintaining or defending title or right to an asset
These costs would include, for instance, legal costs actually incurred in respect of a court dispute relating to maintaining your right or title to an asset you own.
  • Cost of improvements or enhancements
  • The improvement or enhancement must still be reflected in the asset’s state or nature at the time of its disposal.
  • Valuation date value of an option
  • Cost of ownership of assets used exclusively for business purposes, listed shares and units in a unit trust scheme
  • These costs would include the cost of maintaining, repairing and protecting the asset, rates and taxes and interest. In the case of listed shares and units only one third of the expenditure is allowed.
  • Certain amounts that have been included in the person’s income and amounts arising as a result of value shifting arrangements.
And what about current costs such as interest, repairs, insurance and rates and taxes?
They are normally allowed as deductions from income or are incurred for personal use and are not allowed as part of base cost.

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