• ### Chapter B2:  Worked examples for shares and units

Warning:

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

End of attention

The following examples show how capital gains tax works in various situations where people have bought and sold shares and units. They may help you calculate your own capital gains tax obligation and complete item 17.

Example 1

Sonya has a capital gain from one parcel of shares that she bought before 21 September 1999 and sold less than 12 months later

In August 1999 Sonya bought 1,000 shares in Tulip Ltd for \$1,500, including brokers fees, and sold them in July 2000 for \$2,300. 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 methods. So her capital gain will be

\$2,300 − \$1,500 = \$800

As she has no other CGT events and does not have any capital losses, Sonya completes item 17 as follows:

End of example

Example 2

Andrew has a capital gain from the sale of units which he bought before 21 September 1999 and sold more than 12 months later

In May 1999 Andrew bought 1200 units in Share Trust for \$1,275, including brokerage fees. He sold the units in February 2001 for \$1,595.

This was 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 method or the discount method, whichever gives him the best result.

Indexation method

If Andrew calculates his capital gain or capital loss using the indexation method, the indexation factor is:

CPI figure for September 1999 quarter ÷ CPI figure for June 1999 quarter

123.4 ÷ 122.3 = 1.009

His indexed cost base is:

His cost (\$1,275) × 1.009 = \$1,286.48

So his capital gain is:

 Capital proceeds \$1,595.00 less Indexed cost base \$1,286.48 Capital gain \$308.00

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 (see note) \$160 Capital gain \$160

Note: If Andrew does not have any capital losses.

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

As he has no other CGT events and does not have any capital losses, Andrew completes item 17 as follows.

End of example

Example 3

Fatima has a capital gain from one parcel of shares which she was given before 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 2000 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 method or the discount method, whichever gives her the best result.

Indexation method

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

CPI figure for September 1999 quarter ÷ CPI figure for December 1986 quarter

123.4 ÷ 79.8 = 1.546

Her indexed cost base is:

Her cost (\$2,500) × 1.546 = \$3,865

So her capital gain is:

 Capital proceeds \$4,500 less Indexed cost base \$3,865 Capital gain \$635

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 (see note) \$1,000 Capital gain \$1,000

Note: If Fatima does not have any capital losses.

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

As she has no other CGT events and does not have any capital losses, Fatima completes item 17 as follows:

End of example

Example 4

Colin has a capital gain from some units he bought after 21 September 1999 and redeemed less than 12 months later

Colin bought 500 units in Equity Trust for \$3,500 in October 2000 and redeemed them in June 2001 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 acquired the units after 21 September 1999, and owned them for less than 12 months, he calculates his capital gain using the 'other' method. Colin's capital gain is:

 Capital proceeds \$5,000 less Cost base \$3,500 Capital gain \$1,500

As he has no other CGT events and does not have any capital losses, Colin completes item 17 as follows:

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.

End of example

Example 5

Mei-Ling made a capital gain from some shares she bought after 21 September 1999 and sold more than 12 months later

Mei-Ling bought 400 shares in TKY Ltd for \$15,000 in October 1999 and sold them for \$23,000 in February 2001. The sale is a CGT event.

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 discount (see note) \$4,000 Capital gain \$4,000

Note: If Mei Ling does not have any capital losses.

As she has no other CGT events and does not have any capital losses, Mei-Ling completes item 17 as follows:

End of example

Example 6

Mario made a capital loss from one parcel of shares he bought before 21 September 1999 and sold more than 12 months later

In October 1986 Mario purchased 2,500 shares in Machinery Manufacturers Ltd for \$2,700 including brokerage costs. He sold the shares in March 2001 for \$2,300. Mario also made a capital loss of \$350 on some shares he sold in the 1998- 99 income year, but had not made any capital gains since then that he could use to offset his capital losses.

The sale is a CGT event. Mario purchased the shares before 21 September 1999 but he made a capital loss, so neither the indexation nor the discount methods will apply.

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

 Reduced cost base \$2,700 less Capital proceeds \$2,300 Capital loss \$400

(This occurs because Mario's reduced cost base is the same as his cost base).

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

 Capital loss for 2000-01 + \$400 Capital loss for 1998-99 \$350 Net capital losses carried forward to later income years \$750

As he has no other CGT events, Mario completes item 17 as follows:

End of example