Chapter B2 - Worked Examples for Shares and Units

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Example 1

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

In August 2000 Sonya bought 1,000 shares in Tulip Ltd for $1,500 including brokers fees and sold them in July 2001 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 method. So her capital gain is:

$2,300 − $1,500 = $800

As she has no other CGT event and does not have any capital losses, Sonya completes item 17 on her tax return as follows:

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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 1,200 units in Share Trust for $1,275 including brokerage fees. He sold the units in August 2001 for $1,595.

The sale 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, the indexation factor is:

CPI for September 1999 quarter ÷ CPI 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 less	$1,595.00
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 less	$1,595
Cost base	$1,275
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 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 as follows:

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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 2001 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 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

= 1.546

Her indexed cost base is:

Her cost ($2,500) × 1.546 = $3,865

So her capital gain is:

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

Discount method

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

Capital proceeds less	$4,500
Cost base	$2,500
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 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 as follows:

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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 2001 and redeemed them in June 2002 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 less	$5,000
Cost base	$3,500
Capital gain	$1,500

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

Information: 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.

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Example 5

Mei-Ling made a capital gain from some shares she bought after 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 2002. The sale is a CGT event. She also has a net capital loss of $1,000 from an earlier income year.

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 less	$23,000
Cost base	$15,000
Total capital gain	$8,000
less net capital loss	$1,000
Discount capital gain	$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 as follows:

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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 2002 for $2,300. 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 shares before 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	$2,700
less capital proceeds	$2,300
Capital loss	$4,00

(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 may make in later income years are:

Capital loss for 2001-02 +	$400
Capital loss for 1999-2000	$350
Net capital losses carried forward to later income years	$750

As he has no other CGT event, Mario completes item 17 on his tax return as follows:

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