• Step 3: Calculate your capital gain or capital loss

    Attention

    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

    There are three ways of calculating your capital gain or capital loss from the sale of your shares or units:

    The indexation method allows you to increase the amount that your asset cost (the cost base) by applying an indexation factor that is based on increases in the consumer price index (CPI) up to September 1999.

    The indexation method can only be applied to assets that you acquired before 11.45am (by legal time in the ACT) on 21 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% (after deducting any capital losses for the year and any unapplied net capital losses from earlier years) provided you have owned the shares or units for at least 12 months.

    For assets that qualify for both the indexation and discount methods, you can choose the method that gives you the better result. You do not have to choose the same method for all your shares or units even if they are in the same company or fund. Because you must offset capital losses against capital gains before you apply the CGT discount, your choice may also depend on the amount of capital losses that you have available - see example 18.

    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.

    You make a capital loss from the sale of your shares or units if their reduced cost base is greater than your capital proceeds. You cannot index amounts included in your reduced cost base.

    If you received a distribution of a capital gain from a managed fund, part C of this guide explains how you calculate the amount of that capital gain. You must use the same method as that chosen by the fund.

    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.

    Allows you to halve your capital gain.

    Basic method of subtracting the cost base from the capital proceeds.

    When to use the method

    Use for shares or units held for 12 months or more, if this method produces a better result for you than the discount method. Use only with assets acquired before 11.45am (by legal time in the ACT) on 21 September 1999.

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

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

    How to calculate your capital gain using the method

    Apply the relevant indexation factor (see CPI table in appendix 2), then subtract the indexed cost base from the capital proceeds (see the worked examples in chapter B2).

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

    Subtract the cost base from the capital proceeds (see the worked examples in chapter B2).

    Last modified: 06 Oct 2009QC 27788