• ## Chapter B2  Worked examples for shares and units

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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 following examples show how CGT works in various situations where people have bought and sold shares and units. They may help you meet your CGT obligation and complete item 17 on your tax return (supplementary section), or item 9 if you use the tax return for retirees.

Example 1

Sonya has a capital gain from one parcel of shares that she bought after 11.45am (by legal time in the ACT) on 21 September 1999 and sold less than 12 months later.

In August 2003 Sonya bought 1,000 shares in Tulip Ltd for \$1,500 including brokerage and sold them in July 2004 for \$2,350. She paid \$50 brokerage on the sale. 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:

= \$2,350 - (\$1,500 + \$50)
= \$800

As she has no other CGT event and does not have any capital losses, Sonya completes item 17 on her tax return (supplementary section) or item 9 if she uses the tax return for retirees as follows:

 17 Capital gains You must also print X in the YES box at G if you received a distribution of a capital gain from a trust. Did you have a capital gains tax event during the year? G No Yes X Net capital gain A                    800.00 Total current year capital gains H                   800.00 Net capital losses carried forward to later income years V

Example 2

Andrew has a capital gain from the sale of units which he bought before 11.45am (by legal time in the ACT) on 21 September 1999 and gave to his brother more than 12 months later.

In May 1999 Andrew bought 1,200 units in Share Trust for \$1,275 including brokerage. He gave the units to his brother in August 2004. At that time they were worth \$1,595.

The gift 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, he indexes the cost of his units and the incidental costs of buying them as follows:

 CPI for September 1999 quarterCPI for June 1999 quarter = 123.4122.3 = 1.009

His indexed cost base is worked out as follows:

His cost (\$1,275) x 1.009

= \$1286.48

So his capital gain is:

 Capital proceeds \$1,595.00 less 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 \$1,595 less Cost base \$1,275 Total capital gain \$320 less discount* \$160 Capital gain \$160

* Andrew does not have any capital losses. If he did he would deduct any capital losses before applying the discount.

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 (supplementary section) as follows:

 17 Capital gains You must also print X in the YES box at G if you received a distribution of a capital gain from a trust. Did you have a capital gains tax event during the year? G No Yes X Net capital gain A                   160.00 Total current year capital gains H                   320.00 Net capital losses carried forward to later income years V

Note

If Andrew had received a non-assessable payment from the fund his cost base may have been reduced and the capital gain may have been greater. For more information, see chapter C2.

Example 3

Fatima has a capital gain from one parcel of shares which she was given before 11.45am (by legal time in the ACT) on 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 2004 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 method 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 quarterCPI for December 1986 quarter = 123.479.8 = 1.5469

Her indexed cost base is:

Her cost (\$2,500) x 1.546

= \$3,865.00

So her capital gain is calculated as follows:

 Capital proceeds \$4,500.00 less Indexed cost base \$3,865.00 Capital gain \$635.00

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* \$1,000 Capital gain \$1,000

* Fatima does not have any capital losses. If she did she would deduct any capital losses before applying the discount.

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 (supplementary section) or item 9 if she uses the tax return for retirees as follows:

 17 Capital gains You must also print X in the YES box at G if you received a distribution of a capital gain from a trust. Did you have a capital gains tax event during the year? G No Yes X Net capital gain A                   635.00 Total current year capital gains H                   635.00 Net capital losses carried forward to later income years V

Example 4

Colin has a capital gain from some units he bought after 11.45am (by legal time in the ACT) on 21 September 1999 and redeemed less than 12 months later.

Colin bought 500 units in Equity Trust for \$3,500 in October 2004 and redeemed them in June 2005 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 owned the units for less than 12 months, he calculates his capital gain using the 'other' method. Colin's capital gain is:

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

As he had no other CGT event during 2004-05 and does not have any capital losses, Colin completes item 17 on his tax return (supplementary section) as follows:

 17 Capital gains You must also print X in the YES box at G if you received a distribution of a capital gain from a trust. Did you have a capital gains tax event during the year? G No Yes X Net capital gain A                   1,500.00 Total current year capital gains H                   1,500.00 Net capital losses carried forward to later income years V

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.

Example 5

Mei-Ling made a capital gain from some shares she bought after 11.45am (by legal time in the ACT) on 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 2005. The sale is a CGT event. She also has a net capital loss of \$1,000 from an earlier income year that has not been applied against later year capital gains.

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 net capital loss \$1,000 Capital gain (before applying discount) \$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 (supplementary section) or item 9 if she uses the tax return for retirees as follows:

 17 Capital gains You must also print X in the YES box at G if you received a distribution of a capital gain from a trust. Did you have a capital gains tax event during the year? G No Yes X Net capital gain A                   3,500.00 Total current year capital gains H                   8,000.00 Net capital losses carried forward to later income years V

Example 6

Mario made a capital loss from one parcel of shares he bought before 11.45am (by legal time in the ACT) on 21 September 1999 and sold more than 12 months later.

In October 1986 Mario purchased 2,500 shares in Machinery Manufacturers Ltd for \$2,650 including brokerage. He sold the shares in March 2005 for \$2,300 and paid \$50 brokerage. 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 Machinery Manufacturers Ltd shares before 11.45am (by legal time in the ACT) on 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 (\$2,650+ \$50) \$2,700 less capital proceeds \$2,300 Capital loss \$400

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

 Net capital loss for 2004-05 \$400 plus net capital losses for 1999-2000 \$350 Net capital losses carried forward to later income years \$750

As he has no other capital gains or capital losses, Mario puts nothing at and completes item 17 on his tax return (supplementary section) or item 9 if he uses the tax return for retirees as follows:

 17 Capital gains You must also print X in the YES box at G if you received a distribution of a capital gain from a trust. Did you have a capital gains tax event during the year? G No Yes X Net capital gain A                   00.00 Total current year capital gains H                   00.00 Net capital losses carried forward to later income years V                  750.00

Example 7

Clare made capital gains from shares she bought before 11.45am (by legal time in the ACT) on 21 September 1999 and had capital losses carried forward from 2003-04.

Clare sold a parcel of 500 shares in March 2005 for \$12,500 - that is, for \$25 each. She had acquired the shares in March 1995 for \$7,500 - that is, for \$15 each. There were no brokerage costs on either purchase or sale. Clare had no other capital gains or capital losses in 2004-05, although she has \$3,500 net capital losses carried forward from previous years.

Because Clare owned the shares for more than 12 months and acquired the shares before September 1999 she can use the CGT discount method or the indexation method to work out her capital gains - whichever gives her a better result. Clare firstly works out her net capital gain by applying both the discount method and the indexation method to the whole parcel of shares:

 Using CGT discount method Using indexation method Capital proceeds \$12,000 \$12,500 Cost base \$7,500 *\$8,070 Capital gain \$5,000 \$4,430 less capital losses \$3,500 \$3,500 \$1,500 \$930 50% discount \$750 Nil Net capital gain \$750 \$930

* \$7,500 x (123.4   114.7 = 1.076)

Because each share is a separate asset, Clare can use different methods to work out her capital gains for shares within the parcel. The lowest net capital gain would result from her applying the indexation method to sufficient shares to absorb the capital loss (or as much of the capital loss as she can) and apply the discount method to any remaining shares. Clare therefore applies the indexation method to the sale of 395** shares and the discount method to the remaining 105. She works out her net capital gain as follows:

 Indexation method (395 shares) Capital proceeds (\$25 each) \$9,875 Cost base (395 x \$15 x 1.076) \$6,375 Capital gain \$3,500 less capital losses \$3,500 Capital gain/(loss) nil
 CGT discount method (105 shares) Capital proceeds (\$25 each) \$2,625 Cost base (105 x \$15) \$1,575 Capital gain \$1,050 less any remaining capital losses nil \$1,050 50% discount \$525 Net capital gain \$525

As she has no other capital gains or capital losses, Clare puts nothing at V, \$4,550 at H (\$3,500 + \$1,050) and completes item 17 on her tax return (supplementary section) or item 9 if she uses the tax return for retirees as follows:

 17 Capital gains You must also print X in the YES box at G if you received a distribution of a capital gain from a trust. Did you have a capital gains tax event during the year? G No Yes X Net capital gain A Total current year capital gains H                   4,550.00 Net capital losses carried forward to later income years V

** To calculate this, Clare worked out the capital gain made on each share using the indexation method (\$4,430   500 = 8.86) and divided the capital loss by this amount (\$3,500   8.86 = 395).

Last modified: 06 Oct 2009QC 27583