The cost base of an asset is its original purchase price plus any acquisition costs, improvements and other allowable amounts. It is used to calculate capital gains or losses on disposal.
The cost base is the foundation for calculating capital gains tax when you dispose of an asset. It includes: the original purchase price, acquisition costs (like legal fees, stamp duty and brokerage), capital improvements made during ownership, costs of ownership that are not tax-deductible (like certain interest in some jurisdictions) and costs relating to the disposal (like legal and agent fees). Maintaining accurate cost base records from the date of acquisition is essential because you may not sell the asset for many years. Without proper records, you may not be able to substantiate a higher cost base, resulting in a larger taxable capital gain. For depreciable assets, the cost base is reduced by the depreciation deductions claimed over the asset's life. SortBooks helps maintain cost base records by correctly categorising asset purchases, improvements and disposal costs in Xero, creating a reliable historical record for future CGT calculations.
SortBooks helps with the bookkeeping behind cost base by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing cost base by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
Capital gains tax is a tax on the profit made from selling or disposing of an asset for more than its cost base. It applies to business assets, investments, property and shares.
An asset is anything of value that your business owns or controls. Assets are listed on the balance sheet and include cash, receivables, inventory, equipment, property and intangible items.
Depreciation is the accounting method of allocating the cost of a tangible asset over its useful life. It reduces taxable income each year and reflects the asset's declining value.
Fixed assets (also called property, plant and equipment) are long-term tangible assets used in your business operations that are not expected to be sold within 12 months.
An asset register is a detailed record of all fixed assets owned by a business, including purchase date, cost, depreciation method, accumulated depreciation and current book value.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.