Original Cost Explained: The 2025 Guide for Australian Investors

When it comes to building wealth, making business decisions, or navigating the ever-evolving world of Australian taxation, understanding the concept of original cost is essential. While it might sound like a dry accounting term, original cost plays a starring role in everything from property investment to capital gains tax (CGT) and asset depreciation. In 2025, with new financial regulations and economic shifts, knowing how original cost works—and how it impacts your money—can help you make smarter choices.

What Is Original Cost? A Quick Refresher

Original cost is the total amount paid to acquire an asset, including the purchase price and any associated expenses (like stamp duty, legal fees, and installation). It sets the baseline for calculating depreciation, capital gains or losses, and even insurance payouts.

• For property: It’s the price you pay, plus transaction costs.

• For shares: It’s the price per share, plus brokerage fees.

• For business equipment: It’s the supplier’s invoice, delivery, and setup costs.

Why does this matter? Because the original cost determines how much of your investment is taxable when you sell, what you can claim in deductions, and how your financial statements stack up.

2025 Policy Changes and Their Impact on Original Cost Calculations

This year has seen several important updates to financial policy that affect how Australians calculate and use original cost:

• Capital Gains Tax (CGT) Indexation: The ATO updated CGT indexation rules for assets held before 1999. While indexation is frozen for most assets, transitional rules for small business assets are in play for 2025, affecting how original cost is adjusted for inflation.

• Instant Asset Write-Offs: The federal government extended the $20,000 instant asset write-off threshold for small businesses through 30 June 2025. This means businesses can immediately deduct the original cost of eligible assets, rather than depreciating them over years.

• Property Investment Deductions: For residential property investors, the ATO has clarified that original cost for plant and equipment deductions now strictly excludes second-hand items, reinforcing the need for accurate original cost records on new purchases.

These policy tweaks mean that miscalculating original cost—or losing track of supporting documents—can result in missed deductions or even ATO penalties.

Real-World Examples: How Original Cost Affects Your Finances

Example 1: Selling an Investment Property

Suppose you bought a unit in Melbourne for $650,000 in 2017, with $25,000 in legal, stamp duty, and renovation costs. In 2025, you sell for $900,000. Your original cost is $675,000. Capital gains tax is assessed on the difference between your selling price and the original cost (minus any selling expenses and allowable improvements). If you overlook renovation receipts, you’ll pay more CGT than necessary. Example 2: Small Business Equipment Purchase

A café in Brisbane buys a new coffee machine for $18,000 in March 2025. Thanks to the instant asset write-off, the café can deduct the full original cost in this year’s tax return, boosting cash flow. But if delivery and installation ($2,000) aren’t included in the original cost, the business misses out on the full deduction. Example 3: Share Portfolio Tracking

An investor buys 1,000 shares in an ASX-listed company at $12.50 each, plus $40 brokerage. The original cost is $12,540. When selling, this figure determines capital gains or losses. Automated portfolio apps now track original cost for you, but double-checking records is vital—especially if you reinvest dividends or participate in share splits.

Tips for Managing and Maximising Original Cost in 2025

• Keep Detailed Records: Store receipts, contracts, and statements. The ATO can request evidence of original cost years after purchase.

• Review Policy Updates: Check for ATO updates each financial year, as rules for calculating original cost (especially for business and investment assets) can change.

• Use Digital Tools: Many accounting apps and platforms can now automatically track and categorise original cost, helping you avoid manual errors.

• Claim Everything You’re Entitled To: Don’t leave out associated costs like installation, legal fees, or stamp duty—they all count towards original cost for tax purposes.

Conclusion: Don’t Underestimate the Power of Original Cost

Original cost isn’t just a line on a spreadsheet—it’s the foundation of accurate tax returns, smarter investments, and better business decisions. In 2025, with evolving tax rules and digital tools making record-keeping easier than ever, there’s never been a better time to get your original cost calculations right.