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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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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%
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.
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.
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.
Last modified: 06 Oct 2009QC 27583