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Sometimes, taxpayers own shares or units in a particular company or trust that they may have acquired at different times. This can happen as people decide to increase their investment in the company or unit trust. A common question people ask the Australian Taxation Office when they dispose of only part of their investment is how to identify the particular shares or units they have disposed of.
This can be very important because shares or units bought at different times may have cost different amounts. In calculating the capital gain or capital loss when disposing of only part of an investment, you need to be able to identify which ones you have disposed of. It is also important where some of your shares or units were acquired before 20 September 1985, as a capital gain or capital loss you make when you dispose of these shares is disregarded.
As a general rule, if you have kept complete records you should be able to identify which particular shares or units you have disposed of - for example, by reference to share certificate numbers, CHESS statements, broker's statements or other records which show details of shares bought and sold. Alternatively, you may wish to use a 'first in, first out' basis. Under this approach, you will treat the first shares or units you bought as being the first you disposed of.
In limited circumstances, the ATO will also accept an average cost method to determine the cost of the shares disposed of. This average cost method can be used only when:
- the shares are in the same company
- the shares are acquired on the same day
- the shares confer identical rights and impose identical obligations and
- you are not required to use market value for cost base purposes.
Identifying acquisition of shares or units
Tom bought 1000 shares in WHO Ltd on 1 July 1997. He bought another 3000 in the company on 1 July 1999.
In December 1999, WHO Ltd issued Tom with a CHESS statement for his 4000 shares. When he sold 1500 of the shares on 1 January 2000, he was not sure whether they were the shares he bought in 1999 or whether they included the shares bought in 1997.
Because Tom could not identify when he bought the particular shares he sold, he decided to use the 'first in, first out' method and nominated the 1000 shares bought in 1997 plus 500 of the shares bought in 1999.
Last modified: 18 Sep 2009QC 18323