CGT Cost Base Australia 2026-27: Cut Your Tax the Right Way

Quick answer: Your CGT cost base is everything the ATO lets you add to what you paid for an asset before the sale price is measured against it — purchase price, stamp duty, legal fees, selling commissions, renovations, and (with conditions) non-deductible ownership costs. Every extra dollar in the cost base cuts your capital gain by a dollar, and after the 50% discount that’s up to 47 cents of tax saved per dollar. In 2026-27, a properly built cost base on a $950,000 property sale can save you nearly $18,000.

This guide walks through the ATO’s five cost base elements, the third-element traps that trip up owners, what you can’t add (the double-dip rule), the reduced cost base asymmetry nobody explains, and a full worked example — alongside our 50% CGT discount guide and the CGT calculator.

The $1 rule: why the cost base matters

Capital gains tax is brutally simple at its core: gain = sale price − cost base. The sale price is mostly fixed. The cost base is the part you can influence — and most people leave thousands on the table because they never kept the receipts.

Here’s the maths that makes it worth the effort. Say you add $10,000 of legitimate costs to your cost base:

• Your capital gain falls by $10,000.
• After the 50% CGT discount (held 12+ months, individual), the taxable gain falls by $5,000.
• At a 30% marginal rate plus the 2% Medicare levy, that’s $1,600 of tax saved.
• At 45% plus 2%, it’s $2,350 saved — from paperwork.

And this only gets more important. From 1 July 2027 the 50% discount for individuals is being replaced with cost-base indexation plus a 30% minimum tax on gains — the reform that will make the cost base the single biggest lever in your CGT calculation. Get good at it now. (Source: ATO — Tax reform: CGT.)

The ATO’s five cost base elements

The ATO lists exactly five things that can make up a cost base. Think of them as buy, buy-costs, hold, improve, and defend:

Element	What it covers	Everyday examples
1. Acquisition cost	Money you paid, or the market value of property you gave, to acquire the asset	Purchase price; market value of shares swapped in a takeover
2. Incidental costs	Costs of acquiring the asset or of the CGT event itself (including disposal)	Stamp duty, legal/conveyancing fees, broker and agent commissions (buy and sell), valuations, surveys, advertising the sale, loan application and mortgage discharge fees
3. Ownership costs	Non-deductible costs of owning the asset — conditions apply (below)	Rates, land tax, insurance, repairs, non-deductible interest on the acquisition loan
4. Improvement costs	Capital expenditure to increase or preserve the asset’s value, or to install/move it	Renovations, extensions, new kitchen, zoning applications
5. Title costs	Capital costs to establish, preserve or defend your title or rights	Calls on shares, legal fees in a boundary dispute

The golden rule sitting underneath all five: don’t include any cost you can claim — or could still claim — as a tax deduction. That includes costs you’ve simply forgotten to claim but could still amend your return for. Claim it as a deduction or add it to the cost base — never both.

(Source: ATO — Cost base of your asset.)

The third element: four traps in one

Ownership costs (element 3) are the most misunderstood part of the cost base, and they carry four traps:

1. The 21 August 1991 cutoff. You can only include ownership costs for assets acquired after 20 August 1991. Older assets don’t get them, full stop.
2. Non-deductible only. If you claimed the interest or the rates as a rental deduction, they’re gone from the cost base. This is the mistake rental investors make most: ten years of deductible interest added to the cost base at sale is a double-dip the ATO will unwind. If you didn’t claim them (say, you lived in the property), they can go in.
3. Not for collectables or personal-use assets. Your vintage watch collection and your personal car don’t get third-element treatment.
4. Can’t create or increase a capital loss. This is the quirk: ownership costs are simply excluded when working out whether you made a loss. They reduce gains but never manufacture losses. That asymmetry is why the “reduced cost base” exists (below).

One more nuance worth knowing: ownership costs cannot be indexed, even for pre-September-1999 assets where the rest of the cost base can be (see the indexation note below).

Where selling costs actually go

A near-universal confusion: when you sell for $950,000 and pay an $18,000 agent commission, is your capital proceeds $932,000? No. The ATO treats disposal costs — agent commission, sale brokerage, sale advertising, sale legal fees — as second-element cost base items, not as a reduction of the proceeds.

The answer is the same either way mathematically (a bigger cost base and smaller proceeds move the gain identically), but it matters for records: keep sale invoices with the acquisition file, because they’re part of the cost base, and the ATO’s examples are explicit that the proceeds stay at the full sale price. (Source: ATO CGT guide for personal investors — the Fred example: $6,000 sale proceeds unchanged; $50 sale brokerage added to cost base.)

Reduced cost base: the quiet asymmetry

When you make a capital loss, the ATO makes you recalculate using the reduced cost base. It’s the same five elements, except the third element (ownership costs) is swapped out for a “balancing adjustment amount”. In practice that means:

• All those non-deductible rates, insurance and interest you carefully accumulated don’t count toward a loss.
• Amounts you already deducted (like capital works deductions on a rental) reduce the reduced cost base — the ATO’s worked example takes a $100,000 cost base down to $92,500 after $7,500 of capital works deductions.

Why it matters: a property that looks like it made a small loss on the full cost base may make no loss on the reduced cost base — and capital losses are precious, because they can only offset capital gains, not salary or other income. Know which base you’re in before you assume a loss is available.

Four special cases that reset or substitute your cost base

1. Market value substitution

If you acquired the asset for nothing, it can’t be valued, or the dealing wasn’t at arm’s length, the first element becomes the market value at the time you acquired it. The mirror image applies on sale: sell to family or a mate below market in a non-arm’s-length deal and you’re treated as having received market value. Generosity to your kids doesn’t reduce your CGT. (Source: ATO — Transferring property to family or friends.)

2. Inherited property

You’re deemed to have acquired the asset on the date of death. If the deceased bought it before 20 September 1985 (pre-CGT), your first element is the market value at death. If they bought it post-CGT, the deceased’s cost base carries across to you — except where the dwelling was their main residence and not income-producing when they died (post-20-August-1996), in which case it’s market value at death. The practical pain point is reconstructing a dead relative’s cost base decades later — which is exactly why record-keeping matters. See our CGT on inherited property guide for the full treatment.

3. The home-that-became-a-rental reset (s 118.192)

This one blindsides people. If your home becomes a rental after 20 August 1996, you’re deemed to have acquired it at its market value on the day it was first used to produce income — and every cost you incurred before that day is ignored. Buy for $400,000 in 2015, rent it out from 2022 when it’s worth $700,000, sell for $800,000: your cost base starts at $700,000, not $400,000. The original purchase price, the stamp duty, the renovations you did while living there — all wiped. A valuation at the changeover date is worth every cent. (It pairs with our 6-year rule guide.)

4. Indexation: frozen in 1999

For assets acquired before 21 September 1999 and held 12+ months, you can choose indexation instead of the 50% discount: costs incurred by 21 September 1999 are indexed up to 30 September 1999. You can’t combine it with the discount, you can’t index the third element, and you can’t use it to create a capital loss. Relevant to a shrinking club of long-held assets — but if you own one, the choice between indexation and the discount is worth modelling.

Step by step: building your cost base

1. Start with what you paid — the contract price, or market value if it was gifted, inherited, or a non-arm’s-length deal.
2. Add buying costs (element 2): stamp duty, legal/conveyancing, broker fees, valuations, loan application fees.
3. Add non-deductible ownership costs (element 3) — rates, insurance, land tax, repairs, interest — only if the asset was acquired after 20 August 1991, you never claimed them, and it isn’t a collectable or personal-use asset.
4. Add capital improvements (element 4): renovations, extensions, structural work. Repairs you already claimed stay out.
5. Add title-defence costs (element 5), if any.
6. Add selling costs (element 2 again): agent commission, sale advertising, sale legal fees, mortgage discharge fees.
7. Subtract anything deductible — if in doubt, the deduction wins and the cost base loses. Check capital works deductions you’ve claimed too (they reduce the reduced cost base).

Then: gain = sale price − cost base. Apply the 50% discount if eligible, add the result to your taxable income, and run the numbers through our CGT calculator to sense-check the final bill.

Worked example: Priya’s $950,000 sale

Priya bought an investment unit in 2019 for $600,000 and sold it in 2026-27 for $950,000. She kept every receipt:

Cost base item	Element	Amount
Purchase price	1	$600,000
Stamp duty	2	$23,000
Legal fees on purchase	2	$2,000
Non-deductible rates & insurance (held while between tenants, unclaimed)	3	$25,000
Kitchen renovation	4	$40,000
Agent commission on sale	2	$18,000
Legal fees on sale	2	$3,000
Total cost base		$711,000

Step	Calculation	Amount
Capital gain	$950,000 − $711,000	$239,000
50% discount (held 7 years)	$239,000 × 50%	$119,500 taxable
Tax at 30% + 2% Medicare levy	$119,500 × 32%	$38,240

Now the counterfactual: if Priya had only counted the purchase price, her gain would have been $350,000, the discounted gain $175,000, and her tax $56,000. The $111,000 of cost-base work — most of it sitting in a shoebox of receipts — saved her $17,760.

Common mistakes

• Double-dipping deducted interest. The single most expensive error: adding years of mortgage interest to the cost base that you already claimed against the rent. One or the other — check your old returns.
• Forgetting sale costs. Agent commissions, advertising and conveyancing on the sale are element-2 items. They’re often the biggest single line item and the most commonly missed.
• Counting the home-rental reset wrong. Assuming your cost base is the original purchase price when the property became a rental years ago — s 118.192 resets it to market value at changeover.
• Adding personal-use or collectable ownership costs. The third element doesn’t apply to them at all.
• Assuming renovations always count. Capital improvements do; repairs you’ve claimed as deductions don’t. Know which yours were.
• No records. The ATO requires you to keep CGT records for five years after the CGT event. Without them, legitimate costs are just a story.

Why this matters more after 1 July 2027

Under the reform now law, for gains accruing from 1 July 2027 the 50% discount gives way to cost-base indexation plus a 30% minimum tax rate on gains for individuals, trusts and partnerships. When the discount disappears, the cost base becomes the primary mechanism for reducing the taxable gain — every dollar documented is a dollar indexed, rather than a dollar merely halved.

For 2026-27 disposals the 50% discount still applies, so you get the best of both worlds this year: a generous discount and a fully documented cost base. Use the window.

FAQ

Can I add mortgage interest to my cost base?

Only if you never claimed it as a deduction (and couldn’t still claim it). Interest claimed against rental income is excluded; interest paid while you lived in the property, or during vacant periods you didn’t claim, can be included for assets acquired after 20 August 1991.

Does stamp duty count toward the cost base?

Yes — stamp duty on acquisition is a classic second-element incidental cost. It’s one of the largest items most property sellers have.

Do selling costs reduce the sale price or increase the cost base?

They increase the cost base (element 2). The ATO is explicit: capital proceeds stay at the full sale price, and the agent commission, advertising and sale legal fees are added to the cost base.

What is the reduced cost base used for?

Working out capital losses. It’s the cost base minus the third element (ownership costs) — so ownership costs can shrink a gain but never create a loss. Deducted amounts like capital works deductions reduce it further.

I inherited a property — what’s my cost base?

If the deceased acquired it before 20 September 1985, your first element is the market value at the date of death. Otherwise the deceased’s cost base generally carries across to you, with an exception for dwellings that were their main residence and not income-producing at death. See our inherited property guide.

My home became a rental — is my cost base the original purchase price?

No — if that happened after 20 August 1996, you’re deemed to have acquired it at market value on the day it was first rented out, and all pre-rental costs are ignored. Get a valuation for that date.

The bottom line

The cost base is the least glamorous and most profitable part of CGT planning. Nobody else’s gain is reduced by your receipts but yours — and at up to 47 cents of tax saved per documented dollar, a $20 folder of invoices is one of the highest-returning investments you’ll ever make. Keep everything, know the third-element traps, and run the final numbers through the CGT calculator before you sign the contract.