CGT Cost Base Evidence Report | What It Is and Why You Need One

When you sell an investment property, the size of your capital gain depends critically on your cost base. Most investors don't know theirs accurately — and that can cost them tens of thousands in CGT.

Capital Gains Tax and the Cost Base

When you sell an investment property, the ATO taxes you on the capital gain — the difference between what you received for the property and what it cost you to acquire, hold, and improve it.

That "cost" figure — your cost base — is far more than just the purchase price.

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What Counts in Your Cost Base?

Under the ATO's rules, your cost base includes:

The purchase price — the amount paid to acquire the property

Acquisition costs — stamp duty, legal fees, inspection costs

Holding costs — interest on loans (if not claimed as a deduction in earlier years), council rates, land tax (in certain circumstances)

Capital improvements — the cost of all structural improvements and additions

Disposal costs — real estate agent fees, legal costs on sale

The more complete and accurate your cost base, the smaller your capital gain — and the less CGT you pay.

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The Problem: Missing Capital Works Costs

This is where most investors fall short. When you sell a property, your accountant will ask for documentation of your cost base. Purchase contracts, stamp duty receipts, and legal invoices are easy to find. But documenting the cost of every capital improvement — especially ones done years or decades ago — is much harder.

Without proper documentation:

The ATO may disallow cost base items you haven't evidenced
Renovations, extensions, and improvements that should reduce your CGT may be excluded
Your assessable capital gain is higher than it should be

For a property with $80,000 of undocumented capital improvements and a 47% marginal tax rate (including income tax and CGT discount), the tax cost of missing those items is around $18,800.

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What a CGT Cost Base Evidence Report Does

A Koste CGT Cost Base Evidence Report is a professionally prepared document by a Chartered Quantity Surveyor that:

Estimates the original construction cost of the building at the time it was built (if not documented)

Identifies and quantifies all capital improvements made to the property during your ownership

Reviews the available evidence — photos, invoices, council records, plans

Prepares a written methodology statement explaining how all figures were derived

Provides an ATO-compliant output that your accountant can use to support your cost base

Why a QS? Why Not Just Use Invoices?

You should absolutely gather all invoices you have. But a QS report adds several important things:

A professional estimate for improvements where invoices don't exist (common for older work)
An expert methodology statement that satisfies the ATO if questioned
An Audit Support Pack with the evidence base behind every number

The ATO accepts QS-prepared cost base estimates as a legitimate basis for cost base calculations — this is explicitly recognised in tax rulings.

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When Do You Need One?

You should consider a CGT Cost Base Evidence Report if you:

Are planning to sell an investment property in the next 1–3 years
Have owned the property for more than 5 years (during which improvements accumulate)
Have undertaken renovations or extensions that may not be fully documented
Purchased a property that had existing improvements when you bought it
Cannot locate all original construction documentation for a property you built

It's also valuable as part of estate planning, where properties change hands and the cost base needs to be established for future beneficiaries.

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The CGT Discount

Don't forget: if you've held the property for more than 12 months, only 50% of the net capital gain is included in your assessable income (for Australian residents). This discount is one of the most powerful tax concessions available — but you still want your cost base to be as high as possible before applying it.

Example:

Sale price: $950,000
Original purchase price: $480,000
Documented improvements: $65,000
Other cost base items: $22,000
Total cost base: $567,000
Gross capital gain: $383,000
After 50% CGT discount: $191,500 assessable
At 37% marginal rate: $70,855 in tax

If there were an additional $80,000 in undocumented improvements:

Adjusted cost base: $647,000
Gross gain: $303,000
After discount: $151,500
Tax: $56,055

The difference: $14,800 in tax saved from one additional QS report.

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Use Our Free CGT Calculator

Estimate your potential capital gain and the impact of a cost base evidence report using Koste's free CGT Calculator. Or contact us to discuss ordering a report before your next sale.

Koste Chartered Quantity Surveyors · 1300 669 400 · info@koste.ai · Robina QLD 4226