Cost Base Indexation From 2027: Why the Date on Every Receipt Starts Mattering

Hold a property longer than twelve months today and you get a 50% discount on the gain. The arithmetic doesn't care when you spent anything: one number, applied right at the end. From 1 July 2027 that goes away for individuals and trusts, replaced by indexing your cost base for inflation — and indexation is worked out per cost base element, per item of expenditure, against the quarter each amount was actually incurred.

So the date attached to a $40,000 renovation stops being a filing detail and becomes part of the calculation. (For everything else that changes and when, start with our 2027 reform guide.)

How the factor is worked out

For each item of expenditure, the indexation factor is the index number for the quarter the CGT event happens, divided by the index number for the quarter you incurred that expenditure. Quarterly CPI index numbers, not frozen at any date the way the old pre-1999 indexation was.

Because it runs per item, a purchase settled in 2028 and a new roof paid for in 2034 carry different factors inside the same calculation. An expense with no reliable date has nothing to index against, and the further back it sits, the more indexation it was in line for.

What indexation doesn't touch

Not all of your cost base gets indexed. The third element, costs of ownership, is excluded outright. Capital losses aren't indexed either; indexation reduces a gain and plays no part in working out a loss.

Then there's the timing cut. Only expenditure incurred on or after 1 July 2027 is indexed. Money you spent before that date flows into the pre-2027 side of the calculation, which the deemed 30 June 2027 valuation settles instead. The deemed reacquisition amount itself counts as expenditure incurred on 1 July 2027, so that valuation becomes the effective starting cost base for the indexed portion of your eventual gain, which is one more reason the valuation carries so much weight.

No, you don't lose indexation for the first year

Worth heading off a reasonable fear. Every asset is deemed sold and reacquired on 1 July 2027, so it would be natural to assume the twelve-month holding rule restarts that day and denies indexation to anything sold before 1 July 2028. It doesn't. The Act adds an exception whose entire job is to make the twelve-month test resolve against your actual acquisition date rather than the deemed one, so a property you've owned since 2014 is treated as a property you've owned since 2014.

The residency test that published commentary keeps getting wrong

A lot of the writing about this reform diverges from the Act on exactly this point, and if you've ever lived outside Australia it's the section to read twice.

To get indexation you must be neither a foreign resident nor a temporary resident at any time during a testing period. That period starts on the later of 1 July 2027 and the day you acquired the asset, and it ends on the day of the CGT event. There's no apportionment and no partial credit: a single day inside that window on the wrong side of the test disqualifies indexation altogether, which is a good deal harsher than the day-apportioned discount rule it replaces.

The other half of the test is more forgiving than most commentary suggests. Residency before 1 July 2027 doesn't count. Spend 2019 to 2023 working in Singapore and move home, and none of that touches whether the indexed side of your gain qualifies, because the testing period can't start earlier than 1 July 2027. Several published summaries state the opposite.

Planning a few years abroad after 2027 is now a question with a capital gains answer attached, and it's one to put to a registered tax agent before you go rather than after you come back.

If you bought between 1985 and 1999

A smaller group with a sharp edge. Assets acquired between 20 September 1985 and 21 September 1999 currently get a choice between frozen indexation and the 50% discount. From 1 July 2027 that choice disappears for individuals and trusts; the discount is the only route left, and only for the deferred pre-2027 component of the gain.

What to actually record, starting now

None of this changes which expenses belong in your cost base. Purchase price, stamp duty, conveyancing, and every capital improvement mattered before and still do. What changes is the cost of a missing date.

• Record the amount and the quarter incurred for every capital expense, not just the financial year. The factor is quarterly, so "FY2031" is a rounder number than the calculation needs.
• Keep whatever your 30 June 2027 valuation rests on, alongside the valuation itself. It's the first element of your indexed cost base, and you may be producing the evidence for it in 2045.
• Keep ownership costs separate from capital ones. One side gets indexed and the other never will, and separating them years later from a single lump of receipts is the kind of job nobody does well.

BrickTrack stores transactions, documents and capital improvements against the property they belong to, each with its own date, so the record you'll need in 2040 is a by-product of tracking the portfolio rather than a reconstruction project.

Common questions

Do I have to do anything before 1 July 2027?

Nothing is due on that date. The one thing you can't recreate afterwards is the 30 June 2027 valuation, so that's the piece worth organising early. Everything else is record-keeping you're better off starting now than backfilling.

Does indexation apply to the gain I've already accrued?

No. Growth up to 30 June 2027 is worked out under today's rules, discount included, and gets deferred until you actually sell. Indexation only applies to the portion of the gain that accrues from 1 July 2027 onward, and only to expenditure incurred on or after that date.

Is every part of my cost base indexed?

No. The third element, costs of ownership, is excluded. Capital losses aren't indexed at all.

What happens to indexation if I move overseas?

Being a foreign resident or a temporary resident at any point between 1 July 2027 (or your acquisition date, if later) and the day of the CGT event disqualifies indexation entirely, with no apportionment for the time you were a resident. Residency before 1 July 2027 doesn't affect the test.

Do I need to track the CPI index numbers myself?

No. You need the amounts and the quarters they were incurred in; the ATO's quarterly index numbers get applied to those at calculation time. Your records are the part only you can supply.

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This article is general information about legislation, not tax advice. Confirm how cost base indexation applies to your circumstances with a registered tax agent, particularly if you have been a foreign or temporary resident at any point since 1 July 2027.