Personal investors guide to capital gains tax 2004-05

Warning: This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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The information in this publication is current at May 2005.

In the taxpayers’ charter we commit to giving you information and advice you can rely on.

If you try to follow the information contained in our written general advice and publications, and in doing so you make an honest mistake, you won’t be subject to a penalty. However, as well as the underpaid tax, we may ask you to pay an interest charge.

We make every effort to ensure that this information and advice is accurate. If you follow our advice, which subsequently turns out to be incorrect, or our advice is misleading and you make a mistake as a result, you won’t be subject to a penalty or an interest charge although you’ll be required to pay any underpaid tax.

If you feel this publication does not fully cover your circumstances, please seek help from the Tax Office or a recognised tax adviser. Since we regularly revise our publications to take account of any changes to the law, you should make sure this edition is the latest. The easiest way to do this is by checking for a more recent version on our website at www.ato.gov.au

Your rights

It is important that you are aware of your rights and obligations when dealing with the Tax Office.

When we make a decision about your tax affairs, we will tell you about your rights and obligations in relation to that decision. We will also give you contact details in case you have any queries or need more information.

There is information under ‘Your rights’ on the Tax Office website at www.ato.gov.au To get a printed copy of the Taxpayers’ charter – what you need to know (NAT 2548), phone our distribution service on 1300 720 092.

How self-assessment affects you

Self-assessment means the Tax Office uses the information you give on your tax return to work out your refund or tax debt. You are required by law to make sure you have shown all your assessable income and claimed only the deductions and tax offsets to which you are entitled. The Tax Office does not take any responsibility for checking the accuracy of the details you provide in your tax return. However, at a later date the Tax Office may examine the details contained in your tax return more thoroughly by reviewing specific parts, or by conducting an audit on your tax affairs.

What are your responsibilities?

It is your responsibility to lodge a tax return that is signed, complete and correct. Even if someone else – including a tax agent – helps you to prepare your tax return, you are still legally responsible for the accuracy of your information.

What if you lodge an incorrect tax return?

Our audit programs are designed to continually check for missing, inaccurate or incomplete information. If you become aware that your tax return is incorrect, you must contact us straight away.

Initiatives to complement self-assessment

There are a number of initiatives administered by the Tax Office which complement self-assessment. Examples include:

if you take reasonable care with your tax affairs, you will not receive a penalty for honest mistakes – but please note that an interest charge on omitted income or over-claimed deductions and tax offsets could still be payable
the process for applying for private rulings
your entitlement to interest on early payment or over-payment of a tax debt
the process for applying for an amendment if you find you have left something out of your tax return.

Do you need to ask for a private ruling?

If you are concerned about the way a tax law applies to your personal tax affairs, you can ask for a private ruling by completing an Application for a private ruling for individuals (NAT 4106–3.2001). You should lodge your tax return by the due date, even if you are waiting for the reply to your application. You may need to request an amendment to your tax return once you have received the private ruling.

We publish all private rulings on our website. What we publish will not contain anything that could identify you. For more information on private rulings, including application forms, visit the Tax Office website at www.ato.gov.au

A bout this guide

The Personal investors guide to capital gains tax 2004-05 explains the capital gains tax consequences of:

the sale or gift (or other disposal) of shares or units
the receipt of distributions of capital gains from managed funds, and
the receipt of non-assessable payments from companies or managed funds.

Who should use this guide?

Use this guide if you are a personal investor who has made a capital gain or capital loss from shares, units or managed funds in 2004–05.

Who should not use this guide?

Do not use this guide if you are an investor who is not a resident of Australia or if you have gains or losses included as part of your income under other provisions of the tax law – for example, if you are carrying on a business of share trading (see Carrying on a business of share trading – Fact sheet).

The guide does not explain more complex issues relating to shares (including employee shares), convertible notes and units. Nor does it apply to shares and units owned by companies, trusts and superannuation funds.

Also, this guide does not cover your capital gains tax consequences when you sell other assets such as:

a rental property
collectables (for example, jewellery, art, antiques and collections), and
assets for personal use (for example, a boat you use for recreation).

For these, see the Guide to capital gains tax 2004-05 (NAT 4151–6.2005).

Publications and services

To find out how to get a publication referred to in this guide and for information about our other services, see More information.

Unfamiliar terms

Some of the terms used in this guide may be new to you. Specific terms are explained in Definitions.

Introduction

This guide will help you complete:

item 17 Capital gains on your Tax return for individuals (supplementary section) 2005, or
item 9 Capital gains if you use the Tax return for retirees 2005.

Note: You cannot use the Tax return for retirees 2005 if you had a distribution from a managed fund during the year.

If you sold or otherwise disposed of shares or units in a unit trust (including a managed fund) in 2004–05, read part A of this guide, then work through part B.

If you received a distribution of a capital gain from a managed fund in 2004–05, read part A of this guide, then work through part C.

Managed funds include property trusts, share trusts, equity trusts, growth trusts, imputation trusts and balanced trusts.

Small business CGT concessions

If you are involved in the sale of shares or units for a small business, you may wish to read the Guide to capital gains tax concessions for small business (NAT 8384).

Investments in foreign hybrids

If you have an investment in a foreign hybrid, the tax treatment from 1 July 2003 or optionally from 1 July 2002 has changed. A foreign hybrid is an entity that was taxed in Australia as a company but taxed overseas as a partnership. More information is available on our website.

General value shifting regime (GVSR)

If you own shares in a company or units (or other fixed interests) in a trust and value has been shifted in or out of your shares or units, you may be affected by value shifting rules. Generally, the rules only affect individuals who control the company or trust, or individuals who are related to individuals or entities that control the company or trust.

For more information, see General value shifting regime - in brief (NAT 8933), available on our website.

P art A - How capital gains tax applies to you

What is capital gains tax and what rate of tax do you pay?

Some terms in this section may be new to you. These words are explained in Definitions.

While we have used the word ‘bought’ rather than ‘acquired’ in our examples, you may have acquired your shares or units without paying for them (for example, as a gift or through an inheritance or through the demutualisation of an insurance company such as AMP, IOOF or NRMA, or a demerger such as the demerger of BHP Steel Ltd (now known as BlueScope) from BHP Billiton Limited). If you acquired shares or units in any of these ways, you may be subject to CGT when you sell them or another CGT event happens.

Similarly, we refer to ‘selling’ shares or units when you may have disposed of them in some other way (for example, giving them away or transferring them to someone else). All of these disposals are CGT events.

CGT is the tax you pay on any capital gain that you include on your annual income tax return. It is not a separate tax, merely a component of your income tax. You are taxed on your net capital gain at your marginal tax rate.

Your net capital gain is:

your total capital gains for the year

minus

your total capital losses for the year and any unapplied net capital losses from earlier years

minus

any CGT discount and small business CGT concessions to which you are entitled.

If your total capital losses for the year are more than your total capital gains, the difference is your net capital loss for the year. It can be carried forward to later income years to be deducted from future capital gains. There is no time limit on how long you can carry forward a net capital loss. You apply your net capital losses in the order that you made them. More information on how to apply your capital losses is in step 8 of Part B - Sale of shares or units, and step 4 of Part C - Distributions from managed funds.

You make a capital gain or a capital loss if a CGT event happens. The disposal of an asset is an example of a CGT event. You can also make a capital gain if a managed fund or other trust distributes a capital gain to you.

You show the total of your current year capital gains at H item 17 on your Tax return for individuals (supplementary section) 2005, or at H item 9 if you use the Tax return for retirees 2005. (Note: You cannot use the Tax return for retirees 2005 if you had a distribution from a managed fund during the year.) You show your net capital gain at A item 17 on your tax return (supplementary section), or at A item 9 if you use the tax return for retirees.

This guide only covers capital gains or capital losses from CGT assets that are shares, units or other interests in managed funds.

World-wide obligations

Australian residents can make a capital gain or capital loss if a CGT event happens to any of their assets anywhere in the world.

How to meet your CGT obligation

To meet your CGT obligations, follow these three main steps:

Decide whether a CGT event has happened.
Work out the time of the CGT event.
Calculate your capital gain or capital loss.

Keep your records

You need to keep good records of any assets you have bought or sold so you can correctly work out the amount of capital gain or capital loss you have made when a CGT event happens. You must keep these records for five years after the CGT event has happened, or, if you have a net capital loss, you should keep records for five years after the time you apply the net capital loss against a capital gain.

Step 1 Decide whether a CGT event has happened

CGT events are the different types of transactions or events that may result in a capital gain or capital loss. A CGT event has happened if you have sold (or otherwise disposed of) your shares or units or other assets during 2004–05. Although CGT events may happen to certain assets, such as assets acquired before 20 September 1985, any capital gains or losses from them are generally disregarded.

Examples of other CGT events that can happen to shares or units include:

when a company makes a payment other than a dividend to you as a shareholder, or when a trust or fund makes a non-assessable payment to you as a unit holder
when a liquidator or administrator declares that shares or financial instruments relating to a company are worthless (see appendix 1 for examples), and
when shares in a company are cancelled because the company is wound up.

For information about other CGT events, see the Guide to capital gains tax 2004-05 (NAT 4151–6.2005).

If a managed fund makes a capital gain and distributes part of that gain to you, you are treated as if you made a capital gain from a CGT event.

If you did not make a capital gain or capital loss from a CGT event during 2004–05, print X in the No box at G item 17 on your Tax return (supplementary section) 2005, or at G item 9 if you use the Tax return for retirees 2005. (Note: You cannot use the Tax return for retirees 2005 if you had a distribution from a managed fund during the year.)

If you did make a capital gain or capital loss from a CGT event during 2004–05, print X in the Yes box. If the CGT event happened to your shares or units and the event is covered in this guide (see About this guide), read on. Otherwise, see the Guide to capital gains tax 2004-05.

Step 2 Work out the time of the CGT event

The timing of a CGT event is important because it determines which income year you show your capital gain or capital loss in. If you sell or otherwise dispose of an asset to someone else, the CGT event happens when you enter into the contract of sale. If there is no contract, the CGT event happens when you stop being the asset’s owner.

If you received a distribution of a capital gain from a managed fund, you are taken to have made the capital gain in the income year shown on your statement from the managed fund.

Step 3 Calculate your capital gain or capital loss

There are three ways of calculating your capital gain from the sale of your shares or units:

The indexation method allows you to increase the amount that your asset has cost (the cost base) by applying an indexation factor that is based on increases in the consumer price index (CPI) up to September 1999.

The indexation method can only apply to assets that you acquired before 11.45am (by legal time in the ACT) on 21 September 1999.

If you use the discount method, you do not apply the indexation factor to the cost base but you can reduce your capital gain by the CGT discount of 50% (after deducting any capital losses for the year and any unapplied net capital losses from earlier years) provided you have owned the shares or units for at least 12 months.

For assets that qualify for both the indexation and discount methods, you can choose the method that gives you the better result. You do not have to choose the same method for all your shares or units even if they are in the same company or fund. Because you must offset capital losses against capital gains before you apply the discount, your choice may also depend on the amount of capital losses that you have available – see Example 7.

You must use the ‘other’ method for any shares or units you have bought and sold within 12 months (that is, when the indexation and discount methods do not apply). To calculate your capital gain using the ‘other’ method, you simply subtract your cost base from what you have received – your capital proceeds.

You make a capital loss from the sale of your shares or units if their reduced cost base is greater than your capital proceeds. You cannot index amounts included in your reduced cost base.

If you received a distribution of a capital gain from a managed fund, Part C of this guide explains how you calculate the amount of that capital gain. You must use the same method as that chosen by the fund.

The following table explains and compares the three methods of calculating your capital gain.

Indexation method

Discount method

‘Other’ method

Description of method

Allows you to increase the cost base by applying an indexation factor based on CPI.

Allows you to halve your capital gain.

Basic method of subtracting the cost base from the capital proceeds.

When to use the method

Use for shares or units held for 12 months or more, if this method produces a better result than the discount method. Use only with assets acquired before 11.45am (by legal time in the ACT) on 21 September 1999.

Use for shares or units held for 12 months or more, if this method produces a better result than the indexation method.

Use for shares or units if you have bought and sold them within 12 months (that is, when the indexation and discount methods do not apply).

How to calculate your capital gain using the method

Apply the relevant indexation factor (see CPI table in appendix 2), then subtract the indexed cost base from the capital proceeds (see the worked examples in chapter B2).

Subtract the cost base from the capital proceeds, deduct any capital losses, then divide by two (see the worked examples in chapter B2).

Subtract the cost base from the capital proceeds (see the worked examples in chapter B2).

Exemptions and rollovers

There may be an exemption that allows you to disregard your capital gain or capital loss. For example, generally you disregard any capital gain or capital loss associated with any pre-CGT assets (that is, those you acquired before 20 September 1985).

There may be a rollover that allows you to defer your capital gain or capital loss. For example, if a company in which you hold shares is taken over or merges with another company, you may have a CGT obligation if you are required to dispose of your existing shares. If you exchanged your existing shares for shares in the takeover company this income year, you may be able to defer or roll over some or all of your capital gain (but not a capital loss) until a later CGT event happens to your replacement shares. This is known as scrip-for-scrip rollover. Another example of a rollover is when you transfer a CGT asset to your former spouse as a result of a court order after a marriage breakdown. In this case, you do not make a capital gain or capital loss on the transfer – your former spouse may make a capital gain or capital loss when a later CGT event happens to the asset. Rollover is also available for some demergers of corporate or trust groups.

Selling a rental property

If you have sold a rental property, have assets from a deceased estate or have several CGT events this income year, this guide does not provide you with enough detail. You need to read the Guide to capital gains tax 2004-05 to find out how to calculate and report your CGT obligation.

Records you need to keep

Most of the records you need to keep to work out your capital gain or capital loss when you dispose of shares in companies or units in unit trusts (including managed funds) will be given to you by the company, the unit trust manager or your stockbroker. It is important that you keep everything they give you on your shares and units.

These records will generally provide the following important information:

the date of purchase of the shares or units
the amount paid to purchase the shares or units
details of any non-assessable payments made to you during the time you owned the shares or units
the date and amount of any calls if shares were partly paid
the sale price if you sell them, and
any commissions paid to brokers when you buy or sell them.

P art B - Sale of shares or units

Some terms in this section may be new to you. These words are printed in red the first time they are used and are explained in Definitions.

While we have used the word ‘bought’ rather than ‘acquired’ in our examples, you may have acquired your asset without paying for it (for example, as a gift or through an inheritance or through the demutualisation of an insurance company such as AMP, IOOF or NRMA, or a demerger such as the demerger of BHP Steel Ltd (now known as BlueScope) from BHP Billiton Limited).

Similarly, we refer to ‘selling’ an asset, when you may have disposed of it in some other way (for example, by giving it away or transferring it to someone else).

Chapter B1 How to work out your capital gain or capital loss

To calculate your capital gain from the sale of shares or units in a unit trust (for example, a managed fund), the main steps are:

work out how much you have received from each CGT event (your capital proceeds)
work out how much each CGT asset cost you (the cost base), and
subtract 2 (the cost base) from 1 (the capital proceeds).

If you received more from the CGT event than the asset cost you (that is, the capital proceeds are greater than the cost base), the difference is your capital gain. The three ways of calculating your capital gain are described in step 3 of part A.

If the capital proceeds received from the sale are less than the asset cost, you need to work out the asset’s reduced cost base to see if you have made a capital loss. Generally, for shares the cost base and reduced cost base are the same. However, they will differ if you choose the indexation method because the reduced cost base cannot be indexed. If the reduced cost base is greater than the capital proceeds, the difference is your capital loss.

If the capital proceeds are less than the cost base but more than the reduced cost base, you have not made a capital gain or a capital loss.

The steps on the following pages show you the calculations required to work out your CGT obligation using the ‘other’ and discount methods. If you want to use the indexation method (by indexing your cost base for inflation), you need to do this at step 2 and you may find it easier to follow the worked examples in chapter B2.

You may find it useful to use notepaper to do your calculations while you work through the following steps so you can transfer the relevant amounts to item 17 on your Tax return (supplementary section) 2005, or item 9 if you use the Tax return for retirees 2005. (Note: You cannot use the Tax return for retirees 2005 if you had a distribution from a managed fund during the year.)

Step 1 Work out your capital proceeds from the CGT event

The capital proceeds are what you receive, or are taken to receive, when you sell or otherwise dispose of your shares or units.

For example, with shares the capital proceeds may be:

the amount you receive from the purchaser
the amount or value of shares or other property you receive on a merger/takeover, or
the market value if you give shares away.

Example

Fred sold his parcel of 1,000 shares for $6,000. Fred’s capital proceeds are $6,000.

Step 2 Work out the cost base of your asset

Indexing your cost base

There are certain circumstances where a cost base may be indexed. This is called the indexation method and the cost base would then become an ‘indexed’ cost base. For more information, see part A or the worked examples in chapter B2.

The cost base of your asset is the total of:

what your asset cost you
certain incidental costs of buying and selling it – brokerage or agent’s fees, legal fees, investment advisers’ fees and stamp duty
non-capital costs of ownership such as interest on monies borrowed to acquire the asset (generally, this will not apply to shares or units because you will usually have claimed or be entitled to claim these costs as tax deductions), and
any costs you incurred in establishing, maintaining and defending your ownership of it.

You may also need to reduce the cost base for an asset such as a share or unit by the amount of any non-assessable payment you received from the company or fund during the time you owned the share or unit. This is explained at shares and units.

For more information on how to determine your cost base and reduced cost base, see the Guide to capital gains tax 2004-05.

Example

Fred had bought 1,000 shares at $5 each ($5,000). He was charged $50 brokerage and paid stamp duty of $25. When he sold the shares he paid $50 brokerage.

The cost base of his shares is:

= $5,000 + $50 + $25 + $50
= $5,125.

Step 3 Did you make a capital gain?

Subtract the amount in step 2 from the amount in step 1.

If the capital proceeds are greater than the cost base, the difference is your capital gain.

Example

As Fred sold his shares for $6,000, he subtracts the $5,125 from the $6,000 to arrive at $875.

Fred made a capital gain of $875.

Step 4 If you did not make a capital gain, work out the reduced cost base of the asset

If you did not make a capital gain, you need to calculate a reduced cost base of your asset before you can work out any capital loss.

The reduced cost base is the cost base less any amounts you need to exclude from it. Interest on borrowings and indexation are examples of amounts you exclude.

Example

In our example, Fred’s cost base and reduced cost base for his shares are the same.

For units, you may need to make adjustments to the cost base and reduced cost base depending on the types of amounts distributed. Your fund should advise you of these amounts in its statements:

tax-deferred amount – this reduces the cost base and reduced cost base
CGT-concession amount – if received before 1 July 2001, this reduces the cost base and reduced cost base (if received on or after 1 July 2001, it does not affect your cost base and reduced cost base)
tax-free amount – this reduces your reduced cost base only
tax-exempted amount – this does not affect your cost base and reduced cost base.

Step 5 Did you make a capital loss?

If the capital proceeds are less than your reduced cost base, the difference is your capital loss.

Example

If Fred had sold his shares for $4,000 instead of $6,000, he would have a capital loss of $1,125 (that is, his reduced cost base of $5,125 less his capital proceeds of $4,000).

Step 6 Did you make neither a capital gain nor a capital loss?

If the capital proceeds are less than or equal to the cost base but more than the reduced cost base, you have not made a capital gain or a capital loss.

Example

If Fred had sold his shares for $5,125, he would not have made a capital gain or a capital loss.

Step 7 Work out your total current year capital gains

Write the total of all of your capital gains for the current year at H item 17 (or H item 9 if you use the Tax return for retirees 2005).

If you only had one asset, show the amount of the capital gain relating to that asset.

If you have more than one asset (including assets other than shares and units) which resulted in a capital gain, include those capital gains in the total at H.

If you had a distribution from a managed fund, include this in your total capital gains. See step 3 in chapter C1.

If you have any capital losses, do not deduct them from the capital gains before showing the total amount at H.

Example

Fred does not have any other capital gains. Therefore, from step 3, he shows $875 at H item 17 on his Tax return (supplementary section) 2005, or at H item 9 if he uses the Tax return for retirees 2005.

Step 8 Applying capital losses against capital gains

If you do not have any capital losses from assets you disposed of this year or unapplied net capital losses from earlier years, go to step 9.

If you made any capital losses this year, deduct them from the amount you wrote at H. If you have unapplied net capital losses from earlier years, deduct them from the amount remaining after you deduct the capital losses made this year. Deduct both types of losses in the manner that gives you the greatest benefit.

Deducting your losses

You will probably get the greatest benefit if you deduct capital losses against:

capital gains for which neither the indexation method nor the discount method applies (that is, if you bought and sold your shares within 12 months)
capital gains calculated using the indexation method, and then
capital gains to which the CGT discount can apply.

Losses from personal use assets and collectables

You can only use capital losses from collectables this year and unapplied net capital losses from collectables from earlier years to reduce capital gains from collectables. Losses from personal use assets are disregarded. Jewellery, art and antiques are examples of collectables. Personal use assets are assets mainly used for personal use that are not collectables – such as a boat you use for recreation. See the Guide to capital gains tax 2004-05 for more information.

If the total of your capital losses for the year and unapplied net capital losses from earlier years is greater than your capital gains, go to step 11.

Example

If Fred had a net capital loss of $75 from some shares that he sold last year and no other capital gains or capital losses this year, he reduces this year’s capital gain of $875 by $75. Fred’s remaining capital gain is $800.

Step 9 Applying the CGT discount

If you have any remaining capital gains you can now apply the CGT discount – if it is applicable – and reduce them by 50%.

Remember, you cannot apply the CGT discount to:

capital gains calculated using the indexation method, and
capital gains from CGT assets you bought and sold within 12 months.

Example

As Fred had owned his shares for at least 12 months, he can reduce his $800 gain by the CGT discount of 50% to arrive at a net capital gain of $400 (cents are not shown):

= $800 x 50%
= $400

Step 10 Show your net capital gain

At A item 17 (or A item 9 if you use the Tax return for retirees 2005), show your net capital gain which is the amount remaining.

Ignore step 11 – it does not apply if you have a net capital gain.

Example

Fred shows his net capital gain of $400 at A item 17 on his Tax return (supplementary section) 2005 or A item 9 if he uses the Tax return for retirees 2005.

Step 11 Work out and show your carry-forward losses

If the total of your capital losses for the year and unapplied net capital losses from earlier years is greater than your capital gains, you were directed to this step from step 8.

Do not put anything at A on your Tax return (supplementary section) 2005.

At V item 17 (or V item 9 if you use the Tax return for retirees 2005) show the amount by which the total of your capital losses for the year and unapplied net capital losses from earlier years is greater than your capital gains for the year. You carry this amount forward to be applied against later year capital gains.

Example

Continuing the example from step 5, if Fred had no other capital losses, he would not put anything at A. He would put $1,125 at V item 17 on his Tax return 2005 (or at V item 9 if he uses the Tax return for retirees 2005), and he would leave H blank.

C hapter B2 Worked examples for shares and units

The following examples show how CGT works in various situations where people have bought and sold shares and units. They may help you meet your CGT obligation and complete item 17 on your tax return (supplementary section), or item 9 if you use the tax return for retirees.

Example 1

Sonya has a capital gain from one parcel of shares that she bought after 11.45am (by legal time in the ACT) on 21 September 1999 and sold less than 12 months later.

In August 2003 Sonya bought 1,000 shares in Tulip Ltd for $1,500 including brokerage and sold them in July 2004 for $2,350. She paid $50 brokerage on the sale. The sale is a CGT event.

As Sonya bought and sold the shares within 12 months, she uses the ‘other’ method to calculate her capital gain as she cannot use the indexation or discount method. So her capital gain is:

= $2,350 – ($1,500 + $50)
= $800

As she has no other CGT event and does not have any capital losses, Sonya completes item 17 on her tax return (supplementary section) or item 9 if she uses the tax return for retirees as follows:

17 Capital gains					You must also print X in the YES box at G if you received a distribution of a capital gain from a trust.
Did you have a capital gains tax event during the year?	G	No	Yes	X
Net capital gain				A 800.00
Total current year capital gains	H 800.00
Net capital losses carried forward to later income years	V

Example 2

Andrew has a capital gain from the sale of units which he bought before 11.45am (by legal time in the ACT) on 21 September 1999 and gave to his brother more than 12 months later.

In May 1999 Andrew bought 1,200 units in Share Trust for $1,275 including brokerage. He gave the units to his brother in August 2004. At that time they were worth $1,595.

The gift is a CGT event. As Andrew bought the units before 21 September 1999 and he owned them for more than 12 months, he can use the indexation or discount method to calculate his capital gain, whichever gives him the better result.

Indexation method

If Andrew calculates his capital gain or capital loss using the indexation method, he indexes the cost of his units and the incidental costs of buying them as follows:

CPI for September 1999 quarter
CPI for June 1999 quarter

123.4
122.3

= 1.009

His indexed cost base is worked out as follows:

His cost ($1,275) x 1.009

= $1286.48

So his capital gain is:

Capital proceeds	$1,595.00
less
Indexed cost base	$1,286.48
Capital gain	$308.52

Discount method

If Andrew uses the discount method, his capital gain is calculated as:

Capital proceeds	$1,595
less
Cost base	$1,275
Total capital gain	$320
less discount*	$160
Capital gain	$160

* Andrew does not have any capital losses. If he did he would deduct any capital losses before applying the discount.

Andrew chooses the discount method because it gives him a smaller capital gain.

As he has no other CGT event and does not have any capital losses, Andrew completes item 17 on his tax return (supplementary section) as follows:

17 Capital gains					You must also print X in the YES box at G if you received a distribution of a capital gain from a trust.
Did you have a capital gains tax event during the year?	G	No	Yes	X
Net capital gain				A 160.00
Total current year capital gains	H 320.00
Net capital losses carried forward to later income years	V

Note

If Andrew had received a non-assessable payment from the fund his cost base may have been reduced and the capital gain may have been greater. For more information, see chapter C2.

Example 3

Fatima has a capital gain from one parcel of shares which she was given before 11.45am (by legal time in the ACT) on 21 September 1999 and sold more than 12 months later.

In October 1986 Fatima was given 500 shares in FJM Ltd with a market value of $2,500. She sold the shares in October 2004 for $4,500.

The sale is a CGT event. As Fatima acquired the shares before 21 September 1999 and owned them for more than 12 months, she can use the indexation or discount method to calculate her capital gain, whichever method gives her the better result.

Indexation method

If Fatima calculates her capital gain using the indexation method, the indexation factor is:

CPI for September 1999 quarter
CPI for December 1986 quarter

123.4
79.8

= 1.5469

Her indexed cost base is:

Her cost ($2,500) x 1.546

= $3,865.00

So her capital gain is calculated as follows:

Capital proceeds	$4,500.00
less
Indexed cost base	$3,865.00
Capital gain	$635.00

Discount method

If Fatima uses the discount method, her capital gain is calculated as:

Capital proceeds	$4,500
less
Cost base	$2,500
Total capital gain	$2,000
less discount*	$1,000
Capital gain	$1,000

* Fatima does not have any capital losses. If she did she would deduct any capital losses before applying the discount.

Fatima chooses the indexation method because it gives her a smaller capital gain.

As she has no other CGT event and does not have any capital losses, Fatima completes item 17 on her tax return (supplementary section) or item 9 if she uses the tax return for retirees as follows:

17 Capital gains					You must also print X in the YES box at G if you received a distribution of a capital gain from a trust.
Did you have a capital gains tax event during the year?	G	No	Yes	X
Net capital gain				A 635.00
Total current year capital gains	H 635.00
Net capital losses carried forward to later income years	V

Example 4

Colin has a capital gain from some units he bought after 11.45am (by legal time in the ACT) on 21 September 1999 and redeemed less than 12 months later.

Colin bought 500 units in Equity Trust for $3,500 in October 2004 and redeemed them in June 2005 for $5,000 by switching or transferring his units from a share fund to a property fund. The redeeming of units is a CGT event.

As Colin owned the units for less than 12 months, he calculates his capital gain using the ‘other’ method. Colin’s capital gain is:

Capital proceeds	$5,000
less
Indexed cost base	$3,500
Capital gain	$1,500

As he had no other CGT event during 2004–05 and does not have any capital losses, Colin completes item 17 on his tax return (supplementary section) as follows:

17 Capital gains					You must also print X in the YES box at G if you received a distribution of a capital gain from a trust.
Did you have a capital gains tax event during the year?	G	No	Yes	X
Net capital gain				A 1,500.00
Total current year capital gains	H 1,500.00
Net capital losses carried forward to later income years	V

Note

If Colin had received a non-assessable payment from the fund, his cost base may have been adjusted and the capital gain may have been greater. For more information, see chapter C2.

Example 5

Mei-Ling made a capital gain from some shares she bought after 11.45am (by legal time in the ACT) on 21 September 1999 and sold more than 12 months later. She also has a net capital loss from an earlier income year.

Mei-Ling bought 400 shares in TKY Ltd for $15,000 in October 1999 and sold them for $23,000 in February 2005. The sale is a CGT event. She also has a net capital loss of $1,000 from an earlier income year that has not been applied against later year capital gains.

As she bought the shares after 21 September 1999, Mei-Ling cannot use the indexation method. However, as she owned the shares for more than 12 months and sold them after 21 September 1999, she can use the discount method. Her capital gain is:

Capital proceeds	$23,000
less
Cost base	$15,000
Total Capital gain	$8,000
less net capital loss	$1,000
Capital gain (before applying discount)	$7,000
less discount	$3,500
Capital gain	$3,500

As she has no other CGT event, Mei-Ling completes item 17 on her tax return (supplementary section) or item 9 if she uses the tax return for retirees as follows:

17 Capital gains					You must also print X in the YES box at G if you received a distribution of a capital gain from a trust.
Did you have a capital gains tax event during the year?	G	No	Yes	X
Net capital gain				A 3,500.00
Total current year capital gains	H 8,000.00
Net capital losses carried forward to later income years	V

Example 6

Mario made a capital loss from one parcel of shares he bought before 11.45am (by legal time in the ACT) on 21 September 1999 and sold more than 12 months later.

In October 1986 Mario purchased 2,500 shares in Machinery Manufacturers Ltd for $2,650 including brokerage. He sold the shares in March 2005 for $2,300 and paid $50 brokerage. Mario also made a capital loss of $350 on some shares he sold in the 1999–2000 income year but had not made any capital gain since then that he could use to offset his capital losses.

The sale is a CGT event. Mario purchased the Machinery Manufacturers Ltd shares before 11.45am (by legal time in the ACT) on 21 September 1999 but he made a capital loss, so neither the indexation nor the discount method applies.

Mario calculates his capital loss for the current year as follows:

Reduced cost base ($2,650+ $50)	$2,700
less capital proceeds	$2,300
Capital loss	$400

The net capital losses that Mario can carry forward to reduce capital gains he may make in later income years are:

Net capital loss for 2004-05	$400
plus net capital losses for 1999-2000	$350
Net capital losses carried forward to later income years	$750

As he has no other capital gains or capital losses, Mario puts nothing at and completes item 17 on his tax return (supplementary section) or item 9 if he uses the tax return for retirees as follows:

17 Capital gains					You must also print X in the YES box at G if you received a distribution of a capital gain from a trust.
Did you have a capital gains tax event during the year?	G	No	Yes	X
Net capital gain				A 00.00
Total current year capital gains	H 00.00
Net capital losses carried forward to later income years	V 750.00

Example 7

Clare made capital gains from shares she bought before 11.45am (by legal time in the ACT) on 21 September 1999 and had capital losses carried forward from 2003–04.

Clare sold a parcel of 500 shares in March 2005 for $12,500 – that is, for $25 each. She had acquired the shares in March 1995 for $7,500 – that is, for $15 each. There were no brokerage costs on either purchase or sale. Clare had no other capital gains or capital losses in 2004–05, although she has $3,500 net capital losses carried forward from previous years.

Because Clare owned the shares for more than 12 months and acquired the shares before September 1999 she can use the CGT discount method or the indexation method to work out her capital gains – whichever gives her a better result. Clare firstly works out her net capital gain by applying both the discount method and the indexation method to the whole parcel of shares:

	Using CGT discount method	Using indexation method
Capital proceeds	$12,000	$12,500
Cost base	$7,500	*$8,070
Capital gain	$5,000	$4,430
less capital losses	$3,500	$3,500
	$1,500	$930
50% discount	$750	Nil
Net capital gain	$750	$930

* $7,500 x (123.4 � 114.7 = 1.076)

Because each share is a separate asset, Clare can use different methods to work out her capital gains for shares within the parcel. The lowest net capital gain would result from her applying the indexation method to sufficient shares to absorb the capital loss (or as much of the capital loss as she can) and apply the discount method to any remaining shares. Clare therefore applies the indexation method to the sale of 395** shares and the discount method to the remaining 105. She works out her net capital gain as follows:

Indexation method (395 shares)
Capital proceeds ($25 each)	$9,875
Cost base (395 x $15 x 1.076)	$6,375
Capital gain	$3,500
less capital losses	$3,500
Capital gain/(loss)	nil

CGT discount method (105 shares)

Capital proceeds ($25 each)

$2,625

Cost base (105 x $15)

$1,575

Capital gain

$1,050

less any remaining capital losses

nil

$1,050

50% discount

$525

Net capital gain

$525

As she has no other capital gains or capital losses, Clare puts nothing at V, $4,550 at H ($3,500 + $1,050) and completes item 17 on her tax return (supplementary section) or item 9 if she uses the tax return for retirees as follows:

17 Capital gains					You must also print X in the YES box at G if you received a distribution of a capital gain from a trust.
Did you have a capital gains tax event during the year?	G	No	Yes	X
Net capital gain				A
Total current year capital gains	H 4,550.00
Net capital losses carried forward to later income years	V

** To calculate this, Clare worked out the capital gain made on each share using the indexation method ($4,430 � 500 = 8.86) and divided the capital loss by this amount ($3,500 � 8.86 = 395).

C hapter B3 Additional information for shares and units

This chapter briefly explains less common situations for personal investors, including:

rights or options
stapled securities
non-assessable payments
share buy-backs
takeovers and mergers
demergers
dividend reinvestment plans
bonus shares and bonus units, and
dividends paid by listed investment companies (LIC) that include a LIC capital gain.

Rights or options to acquire shares or units

If you hold shares or units, you may be issued rights or options to acquire additional shares or units at a specified price.

Rights and options issued directly to you from a company or trust for no cost

You are taken to have acquired the rights and options at the same time you acquired the original shares or units. Therefore, if you acquired the original shares or units before 20 September 1985, any capital gain or capital loss you make when the rights or options expire or are sold is disregarded as they are pre-CGT assets.

If you acquired the original shares or units on or after 20 September 1985, you make a capital gain if the capital proceeds on the sale or expiry of the rights or options are more than their cost base. You make a capital loss if the reduced cost base of the rights or options is more than those capital proceeds.

Rights and options you paid to acquire from a company or trust or you acquired from another person

If you acquired your rights or options on or after 20 September 1985, they are treated much like any other CGT asset and are subject to CGT.

There are special rules that apply if you exercise the rights. For more information, or if you acquire rights or options under an employee share scheme, see the Guide to capital gains tax 2004-05.

Stapled securities

Stapled securities are created when two or more different securities are legally bound together so that they cannot be sold separately. Many different types of securities can be stapled together – for example, many property trusts have their units stapled to the shares of companies with which they are closely associated.

The effect of stapling depends upon the specific terms of the stapling arrangement. The issuer of the stapled security will be able to provide you with detailed information on their particular stapling arrangement. However, in general the effect of stapling is that each individual security retains its character and there is no variation to the rights or obligations attaching to the individual securities.

Although a stapled security must be dealt with as a whole, the individual securities that are stapled are treated separately for tax purposes. For example, if a share in a company and a unit in a unit trust are stapled, you:

continue to include separately in your income tax return dividends from the company and trust distributions from the trust, and
work out any capital gain or capital loss separately for the unit and the share.

Because each security that makes up your stapled security is a separate CGT asset, you must work out a cost base and reduced cost base for each separately.

If you acquired the securities after they were stapled (for example, you bought the stapled securities on the ASX) you do this by apportioning, on a reasonable basis, the amount you paid to acquire the stapled security (and any other relevant costs) between the various securities that are stapled. One reasonable basis of apportionment is to have regard to the portion of the value of the stapled security that each security represented. The issuer of the stapled security may provide assistance in determining these amounts.

If you acquired your stapled securities as part of a corporate restructure you will, during the restructure, have owned individual securities that were not stapled. The way you work out the cost base and reduced cost base of each security depends on the terms of the stapling arrangement.

When you dispose of your stapled securities, you must divide the capital proceeds (on a reasonable basis) between the securities that make up the stapled security and then work out whether you have made a capital gain or capital loss on each security.

For examples covering stapled securities, see the Guide to capital gains tax 2004-05.

Non-assessable payments

There can be non-assessable payments for both shares and units.

Non-assessable payments from a company to a shareholder

Non-assessable payments to shareholders are sometimes called a return of capital and are not very common (although companies such as Coca-Cola, BHP and Amcor have made non-assessable payments). If you received a payment from a company in respect of your shares and it was not a dividend, you deduct the amount of the payment from both the cost base and the reduced cost base of your shares.

If the non-assessable payment is greater than the cost base of your shares, you include the excess as a capital gain. If you use the indexation method to work out the amount of this capital gain you cannot use the discount method to work out a capital gain when you later sell the shares or units.

Non-assessable payments from a managed fund to a unit holder

The treatment of these payments is similar to non-assessable payments from a company to a shareholder. For more information, see chapter C2.

Non-assessable payments under a demerger

If you receive a non-assessable payment under an eligible demerger, you do not deduct the payment from the cost base and reduced cost base of your shares or units. Instead, you make adjustments to your cost base and reduced cost base under the demerger rules. You may make a capital gain on the non-assessable payment if it exceeds the cost base of your original share or unit, although you will be able to choose rollover.

An eligible demerger is one that happens on or after 1 July 2002 and satisfies certain tests. The head entity will normally advise shareholders or unitholders if this is the case.

For more information, see the Guide to capital gains tax 2000-05.

Share buy-backs

If you disposed of shares back to a company under a buy-back arrangement, you may have made a capital gain or capital loss.

You compare the capital proceeds with your cost base and reduced cost base to work out whether you have made a capital gain or capital loss.

The time you make the capital gain or capital loss will depend on the conditions of the particular buy-back offer.

If shares in a company:

are not bought back by the company in the ordinary course of business of a stock exchange – for example, the company writes to shareholders offering to buy their shares (commonly referred to as ‘off-market share buy-back’), and
the buy-back price is less than what the market value of the share would have been if the buy-back hadn’t occurred and was never proposed,

the capital proceeds are taken to be the market value of the share minus the amount of any dividend paid under the buy-back.

Under other off-market buy-backs where a dividend is paid as part of the buy-back, the amount paid excluding the dividend is your capital proceeds for the share.

Takeovers and mergers

If a company in which you held shares was taken over and you received new shares in the takeover company, you may be entitled to scrip-for-scrip rollover for any capital gain you made. This means you can defer your capital gain until a later CGT event happens to your shares. Usually, the takeover company would advise you if the scrip-for-scrip rollover conditions were satisfied.

If you also received some cash from the takeover company you only get rollover on the proportion of the original shares for which you received shares in the takeover company. You will need to apportion the cost base of the original shares between the replacement shares and the cash.

If the scrip-for-scrip conditions were not satisfied, your capital proceeds for your original shares will be the total of any cash and the market value of the new shares you received.

Scrip-for-scrip rollover may also be available to the extent that units in a managed fund are exchanged for units in another managed fund.

For more information about takeovers and mergers, see the Guide to capital gains tax 2004-05.

Demergers

A demerger involves the restructuring of a corporate or fixed trust group by splitting its operations into two or more entities or groups. Under a demerger the owners of the head entity of the group (that is, the shareholders of the company or unit holders of the trust) acquire a direct interest (shares or units) in an entity that was formerly part of the group.

If you owned interests in a company or fixed trust that is the head entity of a demerger group and you received new interests in the demerged company or trust, you may be entitled to demerger rollover.

Generally, the head entity undertaking the demerger will advise whether you are entitled to rollover but you should seek our advice if you are in any doubt. The Tax Office may have provided advice in the form of a class ruling on a specific demerger confirming that rollover is available.

Even if you do not choose rollover, you must recalculate the cost base and reduced cost base of each of your original interests in the head entity and your new interests in the demerged entity.

The Tax Office has a demergers calculator to help you make these calculations. We also have other products and information to help you, such as question and answer sheets. You can access these from the demergers home page on our website (follow the link under ‘Shareholder information’).

AMP demerger

In December 2003, the UK operations of AMP (referred to as ‘HHG’) were demerged from AMP. There were tax consequences from the demerger for shareholders in 2003–04 which are set out in our fact sheet AMP Group demerger: How it affects Australian resident shareholders (NAT 11101), available on our website. The cost base of AMP and HHG shares after the demerger can also be worked out using the fact sheet or the AMP demerger calculator on our website.

If you used the AMP demerger calculator before December 2004, your ‘AMP shares – cost base report’ may be incorrect if, in the calculation, your two largest share parcels appear one after the other in the report and the difference between the two share parcels is 10 shares or less. This will affect very few shareholders. If your cost base report has these features you should use the AMP demerger calculator on our website and prepare a new cost base report.

If you have disposed of your shares and the cost bases you used were incorrect, you will need to recalculate your capital gain or capital loss. If you have already lodged your tax return and the net capital gain is incorrect, you need to amend your tax return.

For more information on how to do this, phone us on 13 28 61 and tell us you need an amendment due to the anomaly in AMP demerger calculator.

Dividend reinvestment plans

Under these plans, shareholders can choose to use their dividend to acquire additional shares in the company instead of receiving a cash payment. For CGT purposes, you are treated as if you received a cash dividend and then used it to buy additional shares. Each share (or parcel of shares) received in this way is treated as a separate asset and you must make a separate calculation when you sell them.

More information

For more information about the issues covered in this chapter, including demergers, see the Guide to capital gains tax 2004-05 and You and your shares 2004-05 (NAT 2632–6.2005).

See appendix 1 for a list of some major transactions involving issues covered in this chapter.

Bonus shares and bonus units

Bonus shares are additional shares received by a shareholder in respect of shares already owned. These shares may be received by a shareholder wholly or partly as a dividend. The shareholder may also pay an amount to get them.

Bonus units may also be received in a similar way.

The CGT rules for bonus shares and bonus units are also very similar. If you have sold bonus shares or bonus units, see the Guide to capital gains tax 2004-05.

Dividends paid by listed investment companies (LIC) that include a LIC capital gain

If a LIC pays a dividend to you that includes a LIC capital gain amount, you may be entitled to an income tax deduction.

You can claim a deduction if:

you are an individual
you were an Australian resident when a LIC paid you a dividend
the dividend was paid to you after 1 July 2001, and
the dividend included a LIC capital gain amount.

The amount of the deduction is 50% of the LIC capital gain amount. The LIC capital gain amount will be shown separately on your dividend statement.

You do not show the LIC capital gain amount at item 17 (or item 9 if you use the tax return for retirees).

Example

Ben, an Australian resident, was a shareholder in XYZ Ltd, a listed investment company. For the 2004–05 income year, Ben received a fully franked dividend from XYZ Ltd of $70,000 including a LIC capital gain amount of $50,000. Ben includes on his tax return the following amounts:

Franked dividend (shown at T item 11 on his tax return)	$70,000
Franking credit (shown at U item 11 on his tax return)	$30,000
Amount included in total income	$100,000
less deduction for LIC capital gain (shown as deduction at item D7 on his tax return	$25,000
Net amount included in income	$75,000

Note

If Ben uses the tax return for retirees, he shows the amounts as follows: franked dividend at T item 8; franking credit at U item 8; deduction for LIC capital gain at item 12.

P art C - Distributions from managed funds

Chapter C1 How to work out your capital gains tax for a managed fund distribution

Some terms in this section may be new to you. These words are explained in Definitions.

Remember

If your managed fund distribution (as advised by the fund) includes a capital gain amount, you include this amount at item 17 Capital gains. You do not include capital gains at item 12 Partnerships and trusts.

Examples of managed funds include property trusts, share trusts, equity trusts, growth trusts, imputation trusts and balanced trusts.

Distributions from managed funds can include two types of amounts that affect your CGT obligation:

capital gains, and
non-assessable payments.

The following steps in this section show you how to record a capital gain distributed from a managed fund. Chapter C2 covers non-assessable amounts which mostly affect the cost base of units but can create a capital gain.

Step 1 Work out the capital gain you have received from the managed fund

You need to know whether you have received any capital gain in your distribution – to find out, check the statement from your managed fund.

This statement should also show which method the fund has used to calculate the gain – the indexation, discount or ‘other’ method. You must use the same method(s) as the fund to calculate your capital gain. (These methods are explained in part A and part B, and in Definitions.)

Fund managers may use different terms to describe the calculation methods and other terms used in this guide. For example, they may refer to capital gains calculated using the indexation method and ‘other’ method as non-discount gains.

Step 2 Gross up any discounted capital gain you have received

If the fund has applied the CGT discount to your distribution, this is known as a discounted capital gain.

You need to gross up any discounted capital gain distributed to you by multiplying the gain by two. This grossed-up amount is your capital gain from the fund. If the managed fund has shown the grossed-up amount of the discounted capital gain on your distribution statement, you can use that amount.

Example

Tim received a distribution from a fund that included a discounted capital gain of $400. Tim’s statement shows that the fund had used the discount method to calculate the gain.

Tim grosses up the capital gain to $800 (that is, $400 x 2).

Step 3 Work out your total current year capital gains

Add up all the capital gains you received from funds (grossed up where necessary) together with any capital gains from other assets. Write the total of all of your capital gains for the current year at H item 17.

If you have any capital losses, do not deduct them from the capital gains before showing the total amount at H.

Example

Tim’s fund also distributed a capital gain of $100 calculated using the other method. Tim shows $900 ($800 + $100) at H item 17 on his tax return (supplementary section).

Step 4 Applying capital losses against capital gains

If you have no capital losses from assets you disposed of this year and no unapplied net capital losses from earlier years, go to step 5.

If you made any capital losses this year, deduct them from the amount you wrote at H. If you have unapplied net capital losses from earlier years, deduct them from the amount remaining after you deduct any capital losses made this year. Deduct both types of losses in the manner that gives you the greatest benefit.

Deducting your losses

You will probably get the greatest benefit if you deduct capital losses from capital gains distributed from the fund in the following order:

capital gains calculated using the ‘other’ method
capital gains calculated using the indexation method, and then
capital gains calculated using the discount method.

If the total of your capital losses for the year and unapplied net capital losses from earlier years is greater than your capital gains for the year, go to step 7.

Example

If Tim had a capital loss of $200 when he sold another CGT asset, he deducts his capital loss ($200) from his capital gain ($900) and arrives at $700. As he applied the loss first against the capital gain calculated using the ‘other’ method and then against the capital gain calculated using the discount method (after grossing it up), Tim can apply the CGT discount to the remaining $700.

Losses from personal use assets and collectables

Capital losses from collectables and unapplied net capital losses from collectables from earlier years can only be used to reduce capital gains from collectables. Losses from personal use assets must be disregarded. Jewellery, art and antiques are examples of collectables. Personal use assets are assets mainly used for personal use that are not collectables – such as a boat you use for recreation. See the Guide to capital gains tax 2004-05 for more information.

Step 5 Applying the CGT discount

If you have any remaining grossed-up discount capital gains you can now apply the CGT discount – if applicable – and reduce them by 50%.

Remember, you cannot apply the CGT discount to capital gains distributed from the fund calculated using the indexation or ‘other’ method.

Example

Tim has deducted his capital losses (including any unapplied net capital losses from earlier years) from his capital gain. He now reduces the amount remaining by 50%:

= $700 x 50%
= $350

Tim has a capital gain of $350.

Step 6 Show your net capital gain

Show at A item 17 the amount remaining after completing steps 1–5. This is your net capital gain for the year. Ignore step 7.

Example

Tim shows $350 at A item 17 on his tax return (supplementary section).

Step 7 Work out your carry-forward losses

If the total of your capital losses for the year and unapplied net capital losses from earlier years is greater than your capital gains for the year, you were directed to this step from step 4.

Do not put anything at A on your tax return (supplementary section).

At V show the amount by which the total of your capital losses for the year and net capital losses from earlier years exceeds your capital gains for the year. You carry this amount forward to be applied against later year capital gains.

More information

For more information about CGT and managed fund distributions, see the Guide to capital gains tax 2004-05.

C hapter C2 Non-assessable payments from a managed fund

Non-assessable payments from a managed fund to a unit holder are common and may be shown on your statement from the fund as:

tax-free amounts (where certain tax concessions received by the fund mean it can pay greater distributions to its unit holders)
CGT-concession amounts (the CGT discount component of any actual distribution)
tax-exempted amounts (generally made up of exempt income of the fund, amounts on which the fund has already paid tax or income you had to repay to the fund), or
tax-deferred amounts (other non-assessable amounts, including indexation received by the fund on its capital gains and accounting differences in income).

Note

You cannot make a capital loss from a non-assessable payment.

CGT-concession amounts received after 30 June 2001 and tax-exempted amounts (whenever they are received) do not affect your cost base and reduced cost base. However, if your statement shows any tax-deferred or tax-free amounts, you adjust the cost base and reduced cost base of your units for future purposes as follows:

cost base – deduct the tax-deferred amount, or
reduced cost base – deduct both the tax-deferred and tax-free amounts.

If the tax-deferred amount is greater than the cost base of your units, you include the excess as a capital gain. You can use the indexation method if you bought your units before 11.45am (by legal time in the ACT) on 21 September 1999.

Note

As a result of recent stapling arrangements, some investors in managed funds have received units which have a very low cost base. The payment of certain non-assessable amounts in excess of the cost base of the units will result in these investors making a capital gain.

A CGT-concession amount received before 1 July 2001 is taken off the cost base and reduced cost base.

Before 1 July 2001 payment of an amount associated with building allowances was treated as a tax-free amount. Payments of these amounts on or after 1 July 2001 are treated as tax-deferred amounts.

Chapter C3 Worked examples for managed fund distributions

The following worked examples take the steps explained in chapter C1 and put them into different scenarios to demonstrate how they work.

If you have received a distribution from a managed fund, you may be able to apply one or more of these examples to your circumstances to help you work out your CGT obligation for 2004–05 and complete item 17 on your tax return.

Example 1

Bob has received a non-assessable amount.

Bob owns units in OZ Investments Fund which distributed income to him for the year ending 30 June 2005. The fund gave him a statement showing his distribution included the following capital gains:

$100 calculated using the discount method (grossed-up amount $200)
$75 calculated using the indexation method, and
$28 calculated using the ‘other’ method.

These capital gains add up to $203.

The statement shows Bob’s distribution did not include a tax-free amount but it did include:

$105 tax-deferred amount.

From his records, Bob knows that the cost base and reduced cost base of his units are $1,200 and $1,050 respectively.

Bob has no other capital gains or capital losses for the 2004–05 income year.

Bob follows these steps to work out the amounts to show on his tax return.

As Bob has a capital gain which the fund reduced by 50% under the CGT discount method ($100), he includes the grossed-up amount ($200) in his total current year capital gains.

To work out his total current year capital gains Bob adds the grossed-up amount to his capital gains calculated using the indexation method and ‘other’ method:

= $200 + $75 + $28
= $303

As Bob has no other capital gains or capital losses and he must use the discount method in relation to the discount gain from the trust, his net capital gain is equal to the amount of capital gain included in his distribution from the fund ($203).

Bob completes item 17 on his tax return (supplementary section) as follows:

17 Capital gains						You must also print X in the YES box at G if you received a distribution of a capital gain from a trust.
Did you have a capital gains tax event during the year?	G	No		Yes	X
Net capital gain					A 203.00
Total current year capital gains			H 303.00
Net capital losses carried forward to later income years			V

CGT consequences for Bob

The tax-deferred amount Bob received is not included in his income or capital gains but it affects the cost base and reduced cost base of his units in OZ Investments Fund for future income years.

Bob deducts the tax-deferred amount from both the cost base and reduced cost base of his units as follows:

Cost base	$1,200
less tax-deferred amount	$105
New cost base	$1,095

Reduced cost base

$1,050

less tax-deferred amount

$105

New reduced cost base

$945

Remember

A CGT-concession amount is only taken off the cost base and reduced cost base if it was received before 1 July 2001.

Example 2

Ilena’s capital loss is greater than her capital gains calculated under the indexation method and ‘other’ method.

Ilena invested in XYZ Managed Fund. The fund makes a distribution to Ilena for the year ending 30 June 2005 and provides her with a statement that shows her distribution included:

$65 discounted capital gain
$50 capital gain calculated using the ‘other’ method, and
$40 capital gain calculated using the indexation method.

The statement shows Ilena’s distribution also included:

$30 tax-deferred amount, and
$35 tax-free amount.

Ilena has no other capital gain but made a capital loss of $100 when she sold some shares during the year.

From her records, Ilena knows the cost base of her units is $5,000 and their reduced cost base is $4,700.

Ilena has to treat the capital gain component of her fund distribution as if she made the capital gain. To complete her tax return, Ilena must identify the capital gain component of her fund distribution and work out her net capital gain.

Ilena follows these steps to work out the amounts to show at item 17 on her tax return (supplementary section).

As Ilena has a $65 capital gain which the fund reduced by the CGT discount of 50%, she must gross up the capital gain. She does this by multiplying the amount of the discounted capital gain by two:

= $65 x 2
= $130

To work out her total current year capital gains Ilena adds her grossed-up capital gain to her capital gains calculated under the indexation method and ‘other’ method:

= $130 + $50 + $40
= $220

She shows her total current year capital gains ($220) at H item 17 on her tax return (supplementary section).

Now Ilena subtracts her capital losses from her capital gains.

Ilena can choose which capital gains she subtracts her capital losses from first. In her case, she will receive a better result if she:

1. subtracts as much as possible of her capital losses (which were $100) against her indexed and ‘other’ method capital gains. Her gains under these methods were $40 and $50 respectively (a total of $90), so she subtracts $90 of her capital losses against these capital gains:

= $90 - $90
= $0 (indexed and ‘other’ method capital gains)

2. subtracts her remaining capital losses after step 1 ($10) against her discounted capital gains ($130):

= $130 - $10
= $120 (discounted capital gains)

3. applies the CGT discount to her remaining discounted capital gains:

=($120 x 50%)
= $60 (discounted capital gains)

Finally, Ilena adds up the capital gains remaining to arrive at her net capital gain:

= $0 (indexed and ‘other’) + $60 (discounted)
= $60 net capital gain

Ilena completes item 17 on her tax return (supplementary section) as follows:

17 Capital gains						You must also print X in the YES box at G if you received a distribution of a capital gain from a trust.
Did you have a capital gains tax event during the year?	G	No		Yes	X
Net capital gain						A 60.00
Total current year capital gains			H 220.00
Net capital losses carried forward to later income years			V 0.00

CGT consequences for Ilena

The tax-deferred and tax-free amounts Ilena received are not included in her income or her capital gain but the tax-deferred amount affects the cost base and reduced cost base of her units in XYZ Managed Fund for future income years. The tax-free amount affects her reduced cost base.

Ilena reduces the cost base and reduced cost base of her units as follows:

Cost base	$5,000
less tax-deferred amount	$30
New cost base	$4,970

Reduced cost base

$4,700

less (tax-deferred amount +
tax-free amount) ($30 + $35)

$65

New reduced cost base

$4,635

Appendixes

Appendix 1 Some major share transactions

Company

Details of transaction

AMP Ltd

Demutualisation

The acquisition cost for AMP Ltd shares was $10.43 per share and the acquisition date was 20 November 1997.

Demerger

In December 2003 the UK operations of AMP (referred to as ‘HHG’) were demerged from AMP. There were tax consequences from the demerger for shareholders in 2003–04 which are set out in our fact sheet AMP Group demerger: How it affects Australian resident shareholders. You can also work out the cost base of AMP and HHG shares after the demerger using the fact sheet or the AMP LTD Demerger calculator on our website.

If you used the AMP demerger calculator before December 2004, your ‘AMP shares – cost base report’ may be incorrect if, in the calculation, your two largest share parcels appear one after the other in the report and the difference between the two share parcels is 10 shares or less. See AMP demerger.

2005 return of capital

On 16 June 2005, AMP made a return of capital to shareholders of $0.40 per share.

Shareholders needed to reduce the cost base and reduced cost base of each share by $0.40. For each share that had a cost base of less than $0.40, the difference was a capital gain in 2004–05.

See our fact sheet AMP 2005 return of capital.

Australian Co-operative Foods Ltd

Restructure

On 29 June 2004, Australian Co-operative Foods Ltd undertook a restructure which involved a number of steps, including its members receiving shares in Dairy Farmers Milk Co-operative Ltd.

The CGT consequences are set out in our fact sheet 2004 Australian Co-operative Foods Ltd restructure.

Australian Gas Light Company Ltd (AGL)

Return of capital

On 29 April 2005, AGL made a return of capital to shareholders of $0.50 per share.

Shareholders needed to reduce the cost base and reduced cost base of each share by $0.50. For each share that had a cost base of less than $0.50, the difference was a capital gain in 2004–05.

See our fact sheet Australian Gas Light Company (AGL) 2005 return of capital.

Bank of Western Australia

Takeover

During September 2003, HBOS plc acquired all shares in Bank of Western Australia. Minority shareholders received $4.25 per share.

The shares were disposed of on or about 11 September 2003.

If the capital proceeds of $4.25 were more than the cost base of the share, the difference was a capital gain in 2003–04. If $4.25 was less than the share’s reduced cost base, the difference was a capital loss.

BHP Billiton Limited

Demerger

In July 2002 BHP shareholders received one BHP Steel Ltd share for every five BHP Billiton shares held. In November 2003 BHP Steel Limited changed its name to BlueScope Steel Limited.

BHP Billiton has advised that BHP Steel represented 5.063% of the market value of the group as a whole just after the demerger. Shareholders who received BHP Steel shares should use this percentage to apportion the sum of the cost bases of their post-CGT BHP Billiton shares between these shares and the BHP Steel shares they received in relation to those post-CGT BHP Billiton shares.

The fact sheet 2002 BHP Billiton Group demerger and the demergers calculator on our website will help you work out the cost bases of your BHP Billiton and BlueScope shares after the demerger.

2004 share buy-back

On 23 November 2004, BHP Billiton completed an off-market share buy-back. Shareholders who took part in the buy-back received $12.57 per share, which included a fully franked dividend of $10.47 per share.

For capital gains tax purposes, they are taken to have received $4.04 per share.

The date the shares were sold under the buy-back was 23 November 2004.

If the capital proceeds of $4.04 were more than the cost base of the share, the difference is a capital gain to the shareholder in 2004–05. If $4.04 was less than the share’s reduced cost base, the difference is a capital loss.

See our fact sheet BHP Billiton 2004 off-market share buy-back.

BlueScope Steel Ltd

2005 share buy-back

In February 2005, BlueScope Steel Ltd (formerly BHP Steel Ltd) announced a share buy-back. Shareholders who took part in the buy-back received $7.75 per share, which included a fully franked dividend of $4.68 per share.

For capital gains tax purposes, they are taken to have received $4.79 per share.

The date the shares were sold under the buy-back was 12 April 2005.

If the capital proceeds of $4.79 was more than the cost base of the share, the difference was a capital gain to the shareholder in 2004–05. If $4.79 was less than the share’s reduced cost base, the difference was a capital loss.

See our fact sheet BlueScope Steel: 2005 off-market share buy-back.

Coles Myer Ltd

Share sale facility

Between 15 March and 23 April 2004, Coles Myer made a share sale facility available to shareholders who had 800 shares or less.

If the capital proceeds were more than the cost base of the share, the difference was a capital gain to the shareholder in 2003–04. If the capital proceeds were less than the share’s reduced cost base, the difference was a capital loss.

See our fact sheet Coles Myer Limited 2004 share sale facility.

2005 share buy-back

On 17 March 2005, Coles Myer announced a share buy-back. Shareholders who took part in the buy-back received $8.30 per share, which included a fully franked dividend of $5.30 per share.

For capital gains tax purposes, they are taken to have received $3.84 per share.

The date the shares were sold under the buy-back was 23 May 2005.

If the capital proceeds of $3.84 were more than the cost base of the share, the difference was a capital gain to the shareholder in 2004–05. If $3.84 was less than the share’s reduced cost base, the difference was a capital loss.

See our fact sheet Coles Myer 2005 off-market share buy-back.

Commonwealth Bank of Australia Ltd

Public share offer

The Commonwealth Bank public shares were acquired on 13 July 1996. For shareholders who use the indexation method in calculating their capital gain, they index their first and final instalments from 13 July 1996.

2004 share buy-back

In March 2004, the Commonwealth Bank announced a general share buy-back. Shareholders who took part in the buy-back received $27.50 per share, which included a fully franked dividend of $16.50 per share.

For capital gains tax purposes, they are taken to have received $13.92 per share.

The date the shares were sold under the buy-back was 29 March 2004.

If the capital proceeds of $13.92 were more than the cost base of the share, the difference was a capital gain to the shareholder in 2003–04. If $13.92 was less than the share’s reduced cost base, the difference was a capital loss.

See our fact sheet Commonwealth Bank of Australia Ltd: 2004 off-market share buy-back.

CSR Limited – Rinker Group Limited

Demerger

In April 2003 CSR shareholders received one Rinker share for every CSR share they held.

CSR has advised that Rinker represented 75% of the market value of the group as a whole just after the demerger. Shareholders who received Rinker shares should use this percentage to apportion the sum of the cost bases of their post-CGT CSR shares between these shares and the Rinker shares they received in relation to those post-CGT CSR shares.

The demergers calculator on our website will help you work out the cost bases of your Rinker and CSR shares after the demerger. Also see our fact sheet 2003 CSR demerger: impact on resident individual shareholders.

Fosters Group Ltd

2003 share buy-back

On 22 December 2003, Foster’s announced that they had completed an off-market share buy-back.

Shareholders who took part in the buy-back received $4.00 per share, which included a fully franked dividend of $2.19 per share.

The date the shares were sold was 22 December 2003.

If the capital proceeds of $1.81 per share was more than the cost base of the share, the difference was a capital gain in 2003–04. If $1.81 was less than the share’s reduced cost base, the difference was a capital loss.

See our fact sheet Foster’s Group Ltd: 2003 off-market share buy-back.

Grainco Australia Ltd (GAL)

Takeover

On 1 October 2003, Grainco Australia Ltd (GAL) and Graincorp entered a scheme of arrangement under which Graincorp took control of GAL. GAL shareholders had a choice of receiving either cash or Graincorp reset preference shares (RPS) in exchange for their GAL shares.

In either case, the value received was $1.392 per GAL share they surrendered.

Scrip-for-scrip rollover was available on the exchange of Graincorp RPS for GAL shares but not to the extent cash was received. Note: Scrip-for-scrip rollover does not apply to a capital loss.

If scrip-for-scrip rollover does not apply and the cost base of the GAL share was more than $1.392, the difference was a capital gain in 2003–04. If $1.392 was less than the share’s reduced cost base, the difference was a capital loss. The date the shares were disposed of under the takeover was 1 October 2003.

Henderson Group PLC (formerly HHG PLC)

Return of cash and reduction of investor base

In April 2005, HHG PLC undertook a capital reduction which included:

a return of cash to all shareholders, and

a reduction in investor base – which affected shareholders unless they chose not to participate.

There are capital gains tax consequences for shareholders. See our fact sheet HHG PLC capital reduction.

Hibernian Friendly Society (NSW) Limited (now Aevum Limited)

Demutualisation

The acquisition cost for Hibernian shares was $1.162 per share and the acquisition date was 2 September 2002. Hibernian changed its name to Aevum Ltd in May 2004.

See our fact sheet Hibernian demutualisation: impact on shareholders.

Insurance Australia Group (IAG) Limited

Share purchase plan

Offers opened on 4 November 2002 for shareholders to purchase shares from IAG (formerly NRMA) for $2.40 per share free of brokerage and transaction costs.

There are no CGT consequences at the time of purchase. However, there are tax consequences in relation to owning and disposing of the shares you purchase.

2004 share buy-back

In May 2004, IAG announced a share buy-back. Shareholders who took part in the buy-back received $4.40 per share, which included a fully franked dividend of $2.62 per share.

The date the shares were sold under the buy-back was 21 June 2004.

For capital gains tax purposes, they are taken to have received $2.16 per share.

If the capital proceeds of $2.16 were more than the cost base of the share, the difference was a capital gain in 2003–04. If $2.16 was less than the share’s reduced cost base, the difference was a capital loss.

See our fact sheet Insurance Australia Group Limited 2004 off-market share buy-back.

IOOF Ltd

Demutualisation

The acquisition cost for IOOF shares was $2.53 per share and the acquisition date was 14 June 2002.

See fact sheet IOOF demutualisation: impact on individual shareholders.

Jupiters Limited (merger with TABCorp)

Merger

On 13 November 2003 Jupiters Limited merged with TABCorp. Jupiter’s shareholders were offered a choice of cash or a combination of cash and TABCorp shares for their Jupiters shares.

Partial scrip-for-scrip rollover was available where TABCorp shares were acquired. Rollover is not available for the cash amounts received. Note: Scrip-for-scrip rollover does not apply to a capital loss.

If scrip-for-scrip rollover does not apply and the cost base of the Jupiter share was more than $11.28, the difference was a capital gain in 2003–04. If $11.28 was less than the share’s reduced cost base, the difference was a capital loss.

See our fact sheet Jupiters Limited merger with TABCorp Holdings Limited.

Mayne Group Ltd

2004 share buy-back

In March 2004, Mayne conducted an off-market share buy-back. Shareholders who took part in the buy-back received $3.55 per share.

The date the shares were sold was 22 March 2004.

If the capital proceeds of $3.55 per share was more than the cost base of the share, the difference was a capital gain to the shareholder in 2003–04. If $3.55 was less than the share’s reduced cost base, the difference was a capital loss.

See our fact sheet Mayne Group Ltd: 2004 off-market share buy-back.

Mincor Resources NL

Demerger

In October 2003 Mincor shareholders received one Tethyan Copper Company Ltd (TCC) share for every 3.37 Mincor shares they held.

Mincor has advised that TCC represented 9.582% of the market value of the group as a whole just after the demerger. Shareholders who received TCC shares should use this percentage to apportion the sum of the cost bases of their post-CGT Mincor shares between these shares and the TCC shares they received in relation to those post-CGT Mincor shares.

The demergers calculator on our website will help you work out the cost bases of your Mincor and TCC shares after the demerger.

See our fact sheet 2003 Mincor Resources NL demerger.

News Corporation Ltd

Reincorporation

In September 2004, News Corporation Ltd reincorporated in the US. Shareholders of News Corporation Ltd can choose scrip-for-scrip rollover on the receipt of News Corporation shares (including those represented by Chess Depository Instruments or CDIs) for the cancellation of their News Corporation Ltd shares. Note: Scrip-for-scrip rollover does not apply to a capital loss.

If rollover is chosen, the first element of the cost base of each News Corporation share (including those represented by CDIs) is the sum of the cost base of the two News Corporation Ltd shares they exchanged for it, and shareholders are taken to have acquired their News Corporation shares or CDIs at the time they acquired News Corporation Ltd shares they exchanged for them.

See our fact sheet Newscorp reincorporation.

NRMA Insurance Group Ltd (NIGL)

Demutualisation

The acquisition cost of NIGL shares allocated to shareholders was $1.78 per share.

The acquisition date was 19 June 2000.

For additional shares purchased through the facility, the acquisition cost was $2.75 and the acquisition date was 6 August 2000.

OPSM Group Ltd

Takeover

Between 16 June 2003 and 2 September 2003 Luxottica South Pacific Pty Limited made a successful takeover offer for OPSM. Shareholders who accepted the offer received $3.80 cash for each OPSM share they held.

The date the shares were disposed of under the takeover was:

17 July 2003 if the shareholder accepted the offer on or before that date, or

the date the offer was accepted if the shareholder accepted the offer after 17 July 2003.

If the capital proceeds of $3.80 per share were more than the cost base of the share, the difference was a capital gain in 2003–04. If $3.80 was less than the share’s reduced cost base, the difference was a capital loss.

Over 50s Mutual Friendly Society Limited (OFM Ltd)

Demutualisation

The acquisition cost of OFM Ltd shares was $1.65 per share and the acquisition date was 12 June 2001.

See fact sheet OFM Investment Group Limited (OFM) demutualisation: impact on individual shareholders.

Pasminco Limited

Declaration that shares are worthless made by administrators

Following the declaration by the administrators on 31 March 2005 that they consider that Pasminco shares are worthless, shareholders of Pasminco can choose to make a capital loss in the 2004–05 year equal to the reduced cost base of their shares at the time of the declaration.

See our fact sheet Capital losses on Pasminco Ltd shares.

Creation of a trust over shares

Shareholders may make a capital loss if they create a valid trust over shares they own in a company under administration – for example, Pasminco shareholders who agree to sell their shares but hold them on trust for the buyer until the sale can be completed. See our fact sheet Capital losses on Pasminco Ltd shares and Taxation Determination TD 2004/13: Capital gains: can CGT event E1 in section 104–55 of the Income Tax Assessment Act 1997 happen to a shareholder in a company in voluntary administration under Part 5.3A of the Corporations Act 2001 who declares a trust over their shares?

Pivot Ltd

Merger

Pivot Ltd changed its name to Incitec-Pivot Ltd in April 2003 and then merged with Incitec Fertilizers Ltd (IFL) on 1 June 2003.

Shareholders of Pivot who acquired their shares before 20 September 1985 made a capital gain under CGT event K6 if their capital proceeds per share was more than $15.08 and they disposed of them after 28 July 2003.

The capital gain is equal to 70% of the difference between the capital proceeds and $15.08. (No capital loss is available under CGT event K6.)

See our fact sheet Pivot merger with Incitec – CGT on sale of pre-CGT shares.

Principal Office Fund (POF)

Takeover

Between 20 June 2003 and 1 September 2003 Investa Property Group (IPG) made a successful takeover offer for Principal Office Fund (POF). Unit holders who accepted the offer had a choice of receiving $19.13, or $5.70 plus seven IPG stapled securities, for every 12 POF units they held.

Unit holders who refused the offer had their POF units compulsorily acquired and received $5.70 plus seven IPG stapled securities for every 12 POF units they held.

Partial scrip-for-scrip rollover was available where IPG stapled securities were received. Rollover is not available for the cash amounts received. Note: Scrip-for-scrip rollover does not apply to a capital loss.

If scrip-for-scrip rollover does not apply, unit holders made a capital gain in 2002–03 or 2003–04 if the cost base of each of their POF units was less than the total value of IPG securities plus the cash they received. Unit holders made a capital loss if the reduced cost base of each of their POF unit was more than the value of IPG securities plus the cash they received for it.

The date the POF units were disposed of under the takeover was:

if the offer was accepted – the date the acceptance was posted (this may have been in 2002–03 or 2003–04) or

if the units were acquired compulsorily – 2 October 2003.

Promina Group Ltd

2005 return of capital

On 20 June 2005 Promina Group Ltd made a return of capital to shareholders of $0.23 per share.

Shareholders needed to reduce the cost base and reduced cost base of each share by $0.23. For each share that had a cost base of less than $0.23, the difference is a capital gain in 2004–05.

See our fact sheet Promina Group Ltd 2005 return of capital.

Rio Tinto Ltd

2005 share buy-back

On 3 February 2005, Rio Tinto announced a share buy-back. Shareholders who took part in the buy-back received $36.70 per share, which included a fully franked dividend of $32.70 per share.

For capital gains tax purposes, they are taken to have received $6.44 per share.

The date the shares were sold under the buy-back was 9 May 2005.

If the capital proceeds of $6.44 was more than the cost base of the share, the difference is a capital gain to the shareholder in 2004-05. If $6.44 was less than the share’s reduced cost base, the difference is a capital loss.

See our fact sheet Rio Tinto Ltd 2005 share buy-back.

Seven Network Ltd

2004 share buy-back

On 14 December 2003, Seven Network Ltd announced a buy-back of ordinary shares.

Shareholders who took part in the buy-back received $5.80 per share, which included a fully franked dividend of $2.32 per share.

The date the shares were sold was 22 December 2003.

If the capital proceeds of $3.48 per share was more than the cost base of the share, the difference was a capital gain in 2003–04. If $3.48 was less than the share’s reduced cost base, the difference was a capital loss.

See our fact sheet Seven Network Ltd: 2004 off-market share buy-back.

Telstra

Public share offer 1

The Telstra public shares were acquired on 15 November 1997. For shareholders who use the indexation method in calculating their capital gain, they index their first and final instalments from 15 November 1997.

Public share offer 2

The Telstra public shares were acquired on 22 October 1999 if the instalment receipts were purchased through the offer. Indexation does not apply as the shares were acquired after 11.45am (by legal time in the ACT) on 21 September 1999.

2003 share buy-back

In November 2003, Telstra undertook an off-market share buy-back. Shareholders who took part in the buy-back received $4.20 per share, which included a fully franked dividend of $2.70 per share.

If the capital proceeds of $1.50 were more than the cost base of the share, the difference was a capital gain in 2003–04. If $1.50 was less than the share’s reduced cost base, the difference was a capital loss.

2004 share buy-back

On 15 November 2004, Telstra announced the results of an off-market share buy-back.

Shareholders who took part in the buy-back received $4.05 per share, which included a fully franked dividend of $2.55 per share. The shares sold under the buy-back were disposed of on 14 November 2004.

For capital gains tax purposes, they are taken to have received $2.25 per share.

If the capital proceeds of $2.25 were more than the cost base of the share, the difference is a capital gain to the shareholder in 2004–05. If $2.25 was less than the share’s reduced cost base, the difference is a capital loss.

See our fact sheet Telstra 2004: Off-market share buy-back.

United Energy Ltd

Takeover

On 23 July 2003 Alinta Ltd and United Energy Ltd entered into a scheme of arrangement under which Alinta acquired all the United Energy shares it did not already own. Shareholders received $3.15 for each United Energy share they held.

The date the shares were disposed of under the takeover was 23 July 2003.

If the capital proceeds of $3.15 was more than the cost base of the share, the difference was a capital gain in 2003–04. If $3.15 was less than the share’s reduced cost base, the difference was a capital loss.

Wesfarmers Group Ltd

Return of capital

On 18 December 2003, Wesfarmers Group Limited made a return of capital to shareholders of $2.50 per share.

Shareholders needed to reduce the cost base and reduced cost base of each share by $2.50. For each share that had a cost base of less than $2.50, the difference was a capital gain in 2003–04.

See our fact sheet Wesfarmers Group Ltd (Wesfarmers) return of capital.

Western Mining Corporation Limited – WMC Resources Limited

Demerger

In December 2002 WMC shareholders received one WMCR share for every WMC share held. Also WMC Limited changed its name to Alumina Ltd.

Alumina has advised that WMCR represented 46.30% of the market value of the group as a whole just after the demerger. Shareholders who received WMCR shares should use this percentage to apportion the sum of the cost bases of their post-CGT Alumina shares between these shares and the WMCR shares they received in relation to those post-CGT Alumina shares.

The demergers calculator on our website will help you work out the cost bases of your Alumina and WMCR shares after the demerger.

Takeover

In March 2005 BHP Billiton Ltd made a takeover offer for WMC Resources Ltd. Shareholders received $7.85 for each WMC share they held.

The date the shares were disposed of under the takeover offer was:

3 June 2005 – if the shareholder accepted the offer on or before that date, or

the date the offer was accepted – if the shareholder accepted the offer between 4 June 2005 and 17 June 2005 and the acceptance was received by BHP by 7.30pm on 17 June 2005, or

for other WMC shareholders – in the 2005–06 income year, when BHP Billiton completed the compulsory acquisition.

If the capital proceeds of $7.85 per share was more than the cost base of the share, the difference was a capital gain. If $7.85 was less than the share’s reduced cost base, the difference was a capital loss.

See our fact sheet WMC resources Ltd takeover by BHP Billiton Ltd.

Westfield

Capital restructure

In July 2004, Westfield Group restructured by issuing holders of Westfield Ltd shares, Westfield Trust units, and Westfield America Trust units with stapled securities.

Participants received Westfield Group stapled securities through either a stapling arrangement or a sale facility. They also had the option of receiving cash under the sale facility.

The tax consequences of these transactions vary depending on whether the shareholder or unitholder chose the ‘cash alternative’ or ‘exchange by sale alternative’ or did nothing.

See our fact sheets Westfield Group restructure 2005: Tax consequences for Westfield Limited shareholders; Westfield Group restructure 2005: Tax consequences for Westfield Trust unitholders; Westfield Group restructure 2005: Tax consequences for Westfield America Trust unitholders.

Westpac Banking Corporation

Share buy-back

In June 2004, Westpac conducted a share buy-back. Shareholders who took part in the buy-back received $14.50 per share, which included a fully franked dividend of $10.50 per share.

For capital gains tax purposes, they are taken to have received $7.21 per share. The date the shares were sold under the buy-back was 21 June 2004.

If the capital proceeds of $7.21 were more than the cost base of the share, the difference was a capital gain to the shareholder in 2003–04. If $7.21 was less than the share’s reduced cost base, the difference was a capital loss.

See our fact sheet Westpac Banking Corporation Ltd 2004 off-market share buy-back.

To obtain a copy of a fact sheet referred to in this appendix, visit our website at www.ato.gov.au or, if you do not have internet access, phone our Publications Distribution Service on 1300 720 092.

Further fact sheets may be on our website which do not appear in this Appendix.

For more information about share transactions in earlier years, visit our website.

A ppendix 2 Consumer price index (CPI)

All groups – weighted average of eight capital cities

Year

Quarter ending

31 Mar

30 June

30 Sept

31 Dec

1985

-

-

71.3

72.7

1986

74.4

75.6

77.6

79.8

1987

81.4

82.6

84.0

85.5

1988

87.0

88.5

90.2

92.0

1989

92.9

95.2

97.4

99.2

1990

100.9

102.5

103.3

106.0

1991

105.8

106.0

106.6

107.6

1992

107.6

107.3

107.4

107.9

1993

108.9

109.3

109.8

110.0

1994

110.4

111.2

111.9

112.8

1995

114.7

116.2

117.6

118.5

1996

119.0

119.8

120.1

120.3

1997

120.5

120.2

119.7

120.0

1998

120.3

121.0

121.3

121.9

1999

121.8

122.3

123.4

N/A*

* If you use the indexation method to calculate your capital gain, the indexation factor is based on increases in the CPI up to September 1999 only.

Definitions

Capital gain

You may make a capital gain from a CGT event such as the sale of an asset. Generally, your capital gain is the difference between your asset’s cost base (what you paid for it) and your capital proceeds (what you received for it). You can also make a capital gain if a managed fund or other unit trust distributes a capital gain to you.

Capital gains tax

Capital gains tax (CGT) refers to the income tax you pay on any net capital gain you make and include on your annual income tax return. For example, when you sell (or otherwise dispose of) an asset as part of a CGT event, you are subject to CGT.

Capital loss

Generally, you may make a capital loss as a result of a CGT event if you received less capital proceeds for an asset than its reduced cost base (what you paid for it). Your capital loss is your reduced cost base less your capital proceeds.

Capital proceeds

Capital proceeds is the term used to describe the amount of money or the value of any property you receive or are entitled to receive as a result of a CGT event. For shares or units, capital proceeds may be:

the amount you receive from the purchaser
the value of shares (or units) you receive on a demerger
the value of shares (or units) and the amount of cash you receive on a merger/takeover, or
the market value if you give them away.

CGT asset

The CGT assets covered by this guide are shares and units.

However, CGT assets also include collectables (such as jewellery), assets for personal use (such as furniture or a boat) and other assets (such as an investment property, vacant land or a holiday home). If you have made a capital gain from the sale of one or more of these assets, you may need to read the Guide to capital gains tax 2004-05.

CGT-concession amounts

These amounts are the CGT discount component of any actual distribution from a managed fund.

CGT event

A CGT event happens when a transaction takes place such as the sale of a CGT asset. The result is usually a capital gain or capital loss.

Cost base

The cost base of an asset is generally what it costs you. It is made up of five elements:

money you paid or property you gave for the asset
certain incidental costs of acquiring or selling it – brokerage, stamp duty, investment consultants fees and legal fees
non-capital costs associated with owning it (generally this will not apply to shares or units because you will usually have claimed or be entitled to claim these costs as tax deductions)
costs associated with increasing its value (for example, if you paid a call on shares), and
what it has cost you to establish, preserve or defend your ownership or rights to it.

The cost base for a share or unit may need to be reduced by the amount of any non-assessable payment you receive from the company or fund.

Demerger rollover

This may apply to CGT events that happen on or after 1 July 2002 to interests that you own in the head entity of a demerger group where a company or fixed trust is demerged from the group. Generally, the head entity undertaking the demerger will advise owners whether demerger rollover is available but you should seek our advice if you are in any doubt. The Tax Office may have provided advice in the form of a class ruling on a specific demerger, confirming that the rollover is available.

This rollover allows you to defer your CGT obligation until a later CGT event happens to your original or your new shares or units.

Demutualisation

A company demutualises when it changes its membership interests to shares. If you received shares as part of a demutualisation of an Australian insurance company (for example, AMP, IOOF or NRMA), you are not subject to CGT until you sell the shares or another CGT event happens.

Usually the company will advise you of your cost base for the shares you received. The company may give you the choice of keeping the shares they have given you or of selling them and giving you the capital proceeds.

If you hold a policy in an overseas insurance company that demutualises, you may be subject to CGT at the time of the demutualisation.

Discount method

The discount method is one of the ways to calculate your capital gain if:

the CGT event happened after 11.45am (by legal time in the ACT) on 21 September 1999, and
you acquired the asset at least 12 months before the CGT event.

If you use the discount method, you do not index the cost base but you can reduce your capital gain by the CGT discount of 50%. However, you must first reduce your capital gains by the amount of any capital losses made in the year and any unapplied net capital losses from earlier years. You discount any remaining capital gain.

If you acquired the asset before 11.45am (by legal time in the ACT) on 21 September 1999, you can choose either the discount method or the indexation method, whichever gives you the better result.

The examples in Part B of this guide show you how the discount method works.

Discounted capital gain

A discounted capital gain is a capital gain that has been reduced by the CGT discount. If the discounted capital gain has been received from a managed fund, you will need to gross up the amount before you apply any capital losses and the CGT discount.

Dividend reinvestment plans

Gross up

Grossing up applies to unit holders who are entitled to a share of the fund’s income that includes a capital gain reduced by the CGT discount. In this case, you ‘gross up’ your capital gain by multiplying by two your share of any discounted capital gain you have received from the fund.

Income year

The income year is the financial year relating to your current income tax return.

Indexation factor

The indexation factor is worked out based on the consumer price index (CPI) in appendix 2.

The indexation of the cost base of an asset is frozen as at 30 September 1999. For CGT events after that time the indexation factor is the CPI for the September 1999 quarter (123.4) divided by the CPI for the quarter in which you incurred costs relating to the asset. The result is rounded to three decimal places. You may have different indexation factors for different amounts included in your cost base.

Indexation method

The indexation method is one of the ways to calculate your capital gain if you bought a CGT asset before 11.45am (by legal time in the ACT) on 21 September 1999. This method allows you to increase the cost base by applying an indexation factor to each item of expenditure in your cost base (based on increases in the CPI up to September 1999).

Some examples in Part B of this guide show you how the indexation method works.

You may prefer to use the discount method for CGT events after 11.45am (by legal time in the ACT) on 21 September 1999 if that method gives you a better result.

LIC capital gain amount

This is an amount notionally included in a dividend from a listed investment company (LIC) which represents a capital gain made by that company. The amount is not included as a capital gain at item 17 on the tax return, or item 9 if you use the tax return for retirees. (See the instructions for dividend income at question 11 in TaxPack 2005 or question 8 in Retirees TaxPack 2005 and this example.)

Net capital gain

A net capital gain is the difference between your total capital gains for the year and the total of your capital losses for the year and unapplied net capital losses from earlier years, less any CGT discount and small business CGT concession to which you are entitled.

You show the result at A item 17 on your tax return (supplementary section), or item 9 if you use the tax return for retirees.

Net capital loss

If your total capital losses for the year are more than your total capital gains, the difference is your net capital loss for the year. This loss can be carried forward and deducted from capital gains you make in later years. There is no time limit on how long you can carry forward a net capital loss.

You can only use capital losses from collectables to reduce capital gains from collectables. If your total capital losses from collectables for the year are more than your total capital gains from collectables, you have a net capital loss from collectables for the year. This loss is carried forward and deducted from capital gains from collectables in later years. There is no time limit on how long you can carry forward a net capital loss from collectables.

Non-assessable payment

A non-assessable payment is a payment received from a company or fund that is not assessed as part of your income on your income tax return. This includes some distributions from unit trusts and managed funds and, less commonly, from companies.

‘Other’ method

To calculate your capital gain using the ‘other’ method, you subtract your cost base from your capital proceeds. You must use this method for any shares or units you have bought and sold within 12 months (that is, when the indexation and discount methods do not apply).

Reduced cost base

The reduced cost base is the amount you take into account when you are working out whether you have made a capital loss when a CGT event happens. The reduced cost base may need to have amounts deducted from it such as non-assessable payments. The reduced cost base does not include indexation or non-capital costs of ownership such as interest on monies borrowed to buy the asset.

Rollover

Rollover allows a capital gain to be deferred or disregarded until a later CGT event happens.

Scrip-for-scrip rollover

This can apply to CGT events that happen on or after 10 December 1999 in the case of a takeover or merger of a company or fund in which you have holdings. The company or fund would usually advise you if the rollover conditions have been satisfied. This rollover allows you to defer your CGT obligation until a later CGT event happens to your shares or units.

You may only be eligible for partial rollover if you received shares (or units) plus cash for your original shares. In that case, if the information provided by the company or fund is not sufficient for you to calculate your capital gain, you may need to seek advice from the Tax Office.

Share buy-backs

If you disposed of shares back to a company under a buy-back arrangement, you may have made a capital gain or capital loss.

Some of the buy-back price may have been treated as a dividend for tax purposes. The time you make the capital gain or capital loss will depend on the conditions of the particular buy-back offer.

Takeovers and mergers

If a company in which you held shares was taken over and you received new shares in the takeover company, you may be entitled to scrip-for-scrip rollover.

If the scrip-for-scrip conditions were not satisfied, your capital proceeds for your original shares will be the total of any cash and the market value of the new shares you received.

Tax-deferred amounts

These amounts include indexation received by a managed fund on its capital gains and accounting differences in income. Tax-deferred amounts reduce both the cost base and reduced cost base of your units in a managed fund.

Tax-exempted amounts

These amounts are generally made up of exempt income of the managed fund – such as amounts on which the fund has already paid tax or income you had to repay to the fund. Tax-exempted amounts do not affect the cost base and reduced cost base of your units in a managed fund.

Tax-free amounts

These amounts allow the managed fund to pay a greater distribution to its unit holders. This is due to certain tax concessions funds can receive. Tax-free amounts affect the reduced cost base but not the cost base of your units in a managed fund.

Unapplied net capital losses from earlier years

This is the amount of net capital losses from earlier years remaining after you have deducted any capital gains made between the year(s) when the losses were made and the current year.

You use unapplied net capital losses from earlier years to reduce capital gains in the current year (after those capital gains have been reduced by any capital losses in the current year).

You can only use unapplied net capital losses from collectables from earlier years to reduce capital gains from collectables in the current and future years.

More information

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Personal tax 13 28 61: Individual income tax and general personal tax enquiries, including capital gains tax.
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Publications

Publications referred to in this guide are:

AMP Group demerger: How it affects Australian resident shareholders (NAT 11101)
Carrying on a business of share trading - Fact sheet
General value shifting regime in brief (NAT 8933)
Guide to capital gains tax 2004-05 (NAT 4151–6.2005)
Guide to capital gains tax concessions for small business (NAT 8384)
You and your shares 2004-05 (NAT 2632–6.2005)
fact sheets listed in appendix 1.

To get any publication referred to in this guide:

visit our website at www.ato.gov.au/publications
phone our Publications Distribution Service on 1300 720 092, or
visit one of our Tax Office shopfronts.

Lodge online with e-tax

Looking for an easy and convenient way to do your tax return? Try e-tax – available free from the Tax Office website.

You can use e-tax to:

prepare your tax return electronically in a secure online environment
calculate items such as your net capital gain
work out your tax refund or tax debt.

e-tax is available from 1 July 2005.

Tax returns lodged using e-tax are usually processed in 14 days.

Last Modified: Tuesday, 6 October 2009

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Personal investors guide to capital gains tax 2004-05

About this guide

Part A - How capital gains tax applies to you

Part B - Sale of shares or units

Chapter B2 Worked examples for shares and units

Chapter B3 Additional information for shares and units

Part C - Distributions from managed funds

Chapter C2 Non-assessable payments from a managed fund

Appendix 2 Consumer price index (CPI)

Definitions

More information

Relying on our information - our commitment to you

Copyright

A bout this guide

P art A - How capital gains tax applies to you

P art B - Sale of shares or units

C hapter B2 Worked examples for shares and units

C hapter B3 Additional information for shares and units

P art C - Distributions from managed funds

C hapter C2 Non-assessable payments from a managed fund

A ppendix 2 Consumer price index (CPI)