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  • Step 3-Calculate your capital gain or capital loss

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    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 most common form of capital gain for individuals results from the sale of shares or units, or from a distribution from a managed fund.

    There are three ways of calculating your capital gain: the indexation method, the discount method and the 'other' method. The 'other' method applies when the indexation and discount methods do not apply.

    The indexation method allows you to increase the value of what 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.

    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%.

    Generally, if you held your shares or units for 12 months or more, you can choose either the discount method or the indexation method to calculate your capital gain, whichever gives you the best result.

    However, you cannot use the indexation method for any assets you acquired after 21 September 1999. You do not have to choose the same method for all of your shares or units, even if they are in the same company or fund.

    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.

    If you sold your asset for less than you paid for it, you have made a capital loss. This happens when your reduced cost base is greater than your capital proceeds. The excess is the amount of your capital loss.

    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 up to September 1999

    Allows you to halve your capital gain

    Basic method of subtracting the cost base from the capital proceeds

    When to use each method

    Use for shares or units held for 12 months or more, if it produces a better result than the discount method. Only for use with assets acquired before 21/9/99

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

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

    How to calculate
    your capital gain using each method

    Apply the relevant indexation factor (see CPI table in appendix 1), then subtract the indexed cost base from the capital proceeds (see worked examples in chapter B2)

    Subtract the cost base from the capital proceeds, deduct any capital losses, then divide by 2 (see worked examples in chapter B2)

    Subtract the cost base from the capital proceeds (see chapter B1)

    If you have sold some shares or units in a unit trust (including a managed fund) this income year, go to part B of this guide to find out how to calculate and report your capital gains tax obligation.

    If you have a capital gain from a managed fund, the statement you receive from the fund should give you the amounts you need.

    If you have received a distribution of a capital gain from a managed fund this income year, go to part C of this guide to find out how to report your capital gains tax obligation.

    Last modified: 06 Oct 2009QC 16182