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WHAT IS INDEXATION METHOD AND WHO CAN USING THIS METHOD?

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24
May

When you make a capital from the sale of asset/s you have to pay Capital Gains Tax (CGT). You have to include this with your income tax return for the financial year. Whenever a capital gain has been made you have to calculate this by using any of the following methods:

  •  Indexation method; 
  • CGT discount method; 
  • Other method. Indexation method is applicable only for the assets that you acquire before 11:45am on

21 September 1999 and allows you to apply CPI (consumer price index) up to September 1999 to the purchase cost of the asset. Based on indexation factor you can increase each amount under this method. That is worked out by using the CPI. As a tax payer, you can use this indexation method to calculate your capital gains if:

  • The CGT event takes place before 11.45am on 21 September 1999; and 
  • You held the assets for 12 months or more.

If you own a company that meets the above clauses, then you have to use indexation
method for your capital gains calculation otherwise you will fall under the discount method. The capital gains are transferred to the CGT summary worksheet according to the method you have used to calculate it along with the asset that has caused it. So, you have to be very careful during the calculation and you need to keep good records of acquisition, maintenance and improvement of the property.


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