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  • Part B: Sale of shares or units

    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
    • B1 How to work out your capital gain or capital loss
    • B2 Worked examples for shares and units
    • B3 Additional information for shares and units

    New terms

    Some terms in this section may be new to you. These words are explained in Definitions.

    While we have used the word 'bought' rather than 'acquired' in some of our examples, you may have acquired your shares or units without paying for them (for example, as a gift or through an inheritance or through the demutualisation of an insurance company such as AMP, IOOF or NRMA, or a demerger such as the demerger of BHP Steel Ltd (now known as BlueScope) from BHP Billiton Limited).

    Similarly, we sometimes refer to 'selling' shares or units although you may have disposed of them in some other way (for example, giving them away or transferring them to someone else). All of these methods of disposal are CGT events.

    B1: How to work out your capital gain or capital loss

    To calculate your capital gain from the sale of shares, or units in a unit trust (for example, a managed fund), the three main steps are:

    • Step 1 Work out how much you have received from each CGT event (the capital proceeds).
    • Step 2 Work out how much each CGT asset cost you (the cost base).
    • Step 3 Subtract the cost base (step 2) from the capital proceeds (step 1).

    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 you received less from the CGT event than the asset cost you (that is, the capital proceeds are less than the cost base), you then 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 be different 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 a 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 below 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 do this at  step 2 . 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 18 on your tax return (supplementary section).

    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.

    Example 1: Capital proceeds

    Fred sold his parcel of 1,000 shares for $6,000. Fred's capital proceeds are $6,000.

    End of example

    Step 2 Work out the cost base of your asset 

    Indexing your cost base

    In certain circumstances a cost base may be indexed up to 30 September 1999 in line with changes in the CPI; 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, stamp duty and investment advisers' fees (but not investment seminar costs)
    • the costs of owning the asset, 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 in chapter B3 and chapter C2.

    For more information on how to determine your cost base and reduced cost base, see the Guide to capital gains tax 2009.

    Example 2: Calculating the cost base

    Fred bought the 1,000 shares that he sold in example 1 for $5 each ($5,000). When he bought them 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 = $5,125

    End of example

    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.

    Example 3: Calculating capital gain

    As Fred sold his shares for $6,000, he subtracts his shares' cost base of $5,125 from the capital proceeds of $6,000 to arrive at his capital gain, which is $875.

    End of example

    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.

    Example 4: Reduced cost base

    In our example, Fred had no amounts to exclude, so the cost base and the reduced cost base for his shares are the same ($5,125).

    End of example

    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 the 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 or your 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 the reduced cost base, the difference is your capital loss.

    Example 5: Capital loss

    If Fred had sold his shares for $4,000 instead of $6,000, he would have made a capital loss of $1,125 (that is, his reduced cost base of $5,125 less his capital proceeds of $4,000).

    End of example

    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 or equal to the reduced cost base, you have not made a capital gain or a capital loss.

    Example 6: Neither capital gain nor capital loss

    If Fred had sold his shares for $5,125, he would not have made a capital gain or a capital loss.

    End of example

    Step 7 Work out your total current year capital gains.

    Write the total of the capital gains for all your assets for the current year at H item 18 on your tax return (supplementary section). If you had a distribution of capital gains from a managed fund, include this in your total capital gains. See step 3 in C1.

    If you have any capital losses, do not deduct them from the capital gains before writing the total amount at H.

    Example 7: Total current year capital gains

    Fred does not have any other capital gains. Therefore, from step 3, he writes $875 at H item 18 on his tax return (supplementary section).

    End of example

    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 from capital gains in the following order:

    1. 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)
    2. capital gains calculated using the indexation method, and then
    3. capital gains to which the CGT discount can apply.
    Losses from collectables and personal use assets

    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. Jewellery, art and antiques are examples of collectables.

    Losses from personal use assets are disregarded. 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 2009 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.

    Example 8: Applying a net capital loss

    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 can reduce this year's capital gain (see example 7) of $875 by $75. Fred's remaining capital gain is $800.

    End of example

    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.

    Example 9: Applying the CGT discount

    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:

    $800 × 50% = $400

    End of example

    Step 10 What is your net capital gain?

    The amount now remaining is your net capital gain (cents are not shown). Write this amount at A item 18 on your tax return (supplementary section). Go to  B2 .

    Step 11 does not apply if you have a net capital gain.

    Example 10: Net capital gain

    Fred writes his net capital gain of $400 at A item 18 on his tax return (supplementary section).

    End of example

    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 write anything at A item 18 on your tax return (supplementary section).

    At V item 18 write 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.

    Example 11: Carry-forward losses

    Continuing the example from step 5, if Fred had no other capital losses, he would write $1,125 at V item 18 on his tax return (supplementary section). He would leave blank both A and H item 18 on his tax return (supplementary section).

    End of example

    B2: Worked examples for shares and units

    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 obligations and complete item 18 on your tax return (supplementary section).

    Example 12: Sonya has a capital gain from one parcel of shares that she bought and sold less than 12 months later.

    In August 2007, Sonya bought 1,000 shares in Tulip Ltd for $1,500 including brokerage and sold them in July 2008 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 - she cannot use the indexation or discount method. 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 18 on her tax return (supplementary section):

    • $800 at H, and
    • $800 at A.
    End of example

     

    Example 13: 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 2008. 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 method 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 quarter ÷ CPI for June 1999 quarter

    123.4 ÷ 122.3 = 1.009

    His indexed cost base is worked out as follows:

    His cost ($1,275) × 1.009 = $1,286.48

    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 CGT discount (Note)

    $160

    Capital gain

    $160

    Note: Andrew does not have any capital losses. If he did, he would deduct any capital losses before applying the CGT 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 18 on his tax return (supplementary section) as follows:

    • $320 at H, and
    • $160 at A.

    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.

    End of example

     

    Example 14: 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 2008 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 quarter ÷ CPI for 1986 quarter

    123.4 ÷ 79.8 = 1.546

    Her indexed cost base is:

    ($2,500) × 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 CGT discount (Note)

    $1,000

    Capital gain

    $1,000

    Note: Fatima does not have any capital losses. If she did she would deduct any capital losses before applying the CGT 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 18 on her tax return (supplementary section) as follows:

    • $635 at H, and
    • $635 at A.
    End of example

     

    Example 15: 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 2008 and redeemed them in June 2009 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 Cost base

    $3,500

    Capital gain

    $1,500

    As he had no other CGT event during 2008-09 and does not have any capital losses, Colin completes item 18 on his tax return (supplementary section) as follows:

    • $1,500 at H, and
    • $1,500 at A.

    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.

    End of example

     

    Example 16: 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 2009. 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, 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 the CGT discount)

    $7,000

    less CGT discount

    $3,500

    Capital gain

    $3,500

    As she has no other CGT event, Mei-Ling completes item 18 on her tax return (supplementary section) as follows:

    • $8,000 at H, and
    • $3,500 at A.
    End of example

     

    Example 17: 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 2009 for $2,300 and paid $50 brokerage costs. 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 income 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 2008-09

    $400

    plus net capital loss 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 does not write anything at A and completes item 18 on his tax return (supplementary section) as follows:

    • do not write anything at A and H, and
    • $750 at V
    End of example

     

    Example 18: 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 2007-08.

    Clare sold a parcel of 500 shares in March 2009 for $12,500 - that is, for $25 each. She had acquired the shares in March 1995 for $7,500 - that is, for $15 each, including stamp duty and brokerage costs. There were no brokerage costs on sale. Clare had no other capital gains or capital losses in 2008-09, although she has $3,500 unapplied net capital losses carried forward from earlier income years.

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

    Calculation element

    Using indexation method

    Using discount method

    Capital proceeds

    $12,500

    $12,500

    Cost base

    $8,070
    (Note)

    $7,500

    Capital gain

    $4,430

    $5,000

    less capital losses

    $3,500

    $3,500

    Subtotal

    $930

    $1,500

    50% CGT discount

    Nil

    $750

    Net capital gain

    $930

    $750

    Note: (123.4 ÷ 114.7 = 1.076) ($7,500 × 1.076 = $8,070)

    However, 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 (Note 2) shares and the discount method to the remaining 105.

    Note 2: 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).

    She works out her net capital gain as follows:

    Indexation method (396 shares)

    Capital proceeds ($25 each)

    $9,875

    Cost base (395 × $15 × 1.076)

    $6,375

    Capital gain

    $3,500

    less capital losses

    $3,500

    Capital gain/(loss)

    Nil

    Discount method (104 shares)

    Capital proceeds ($25 each)

    $2,625

    Cost base (105 × $15)

    $1,575

    Capital gain

    $1,050

    less any remaining capital losses

    nil

    Subtotal

    $1,050

    less 50% CGT discount

    $525

    Net capital gain

    $525

     

    As she has no other capital gains or capital losses, Clare does not write anything at V, writes $4,550 at H ($3,500 + $1,050) and completes item 18 on her tax return (supplementary section) as follows:

    • $4,550 at H, and
    • $525 at A.

    Clare does not write anything at V item 18.

    End of example

    B3: Additional information for shares and units

    This chapter briefly explains less common situations for personal investors, including those arising from:

    Rights or options to acquire shares or units

    If you hold shares or units, you may be issued rights or options to acquire additional shares or units at a specified price.

    Rights or options issued directly to you from a company or trust for no cost

    You are taken to have acquired the rights or options at the same time you acquired the original shares or units. Therefore, if you acquired the original shares or units before 20 September 1985, any capital gain or capital loss you make when the rights or options expire or are sold is disregarded as they are pre-CGT assets.

    If you acquired the original shares or units on or after 20 September 1985, you make a capital gain if the capital proceeds on the sale or expiry of the rights or options are more than their cost base. You make a capital loss if the reduced cost base of the rights or options is more than those capital proceeds.

    Rights and options you paid to acquire from a company or trust - or that you acquired from another person

    If you acquired your rights or options on or after 20 September 1985, they are treated much like any other CGT asset and are subject to CGT.

    There are special rules that apply if you exercise the rights or options. For more information, or if you acquire rights or options under an employee share scheme, see the Guide to capital gains tax 2009.

    Stapled securities

    Stapled securities are created when two or more different securities are legally bound together so that they cannot be sold separately. Many different types of securities can be stapled together - for example, many property trusts have their units stapled to the shares of companies with which they are closely associated.

    The effect of stapling depends upon the specific terms of the stapling arrangement. The issuer of the stapled security will be able to provide you with detailed information on their particular stapling arrangement. However, in general the effect of stapling is that each individual security retains its character and there is no variation to the rights or obligations attached to the individual securities.

    Although a stapled security must be dealt with as a whole, the individual securities that are stapled are treated separately for tax purposes. For example, if a share in a company and a unit in a unit trust are stapled, you:

    • continue to include separately on your income tax return dividends from the company and trust distributions from the trust, and
    • work out any capital gain or capital loss separately for the unit and the share.

    Because each security that makes up your stapled security is a separate CGT asset, you must work out a cost base and reduced cost base for each separately.

    If you acquired the securities after they were stapled (for example, you bought the stapled securities on the ASX), you do this by apportioning, on a reasonable basis, the amount you paid to acquire the stapled security (and any other relevant costs) among the various securities that are stapled. One reasonable basis of apportionment is to have regard to the portion of the value of the stapled security that each security represented. The issuer of the stapled security may provide assistance in determining these amounts.

    If you acquired your stapled securities as part of a corporate restructure you will, during the restructure, have owned individual securities that were not stapled. The way you work out the cost base and reduced cost base of each security depends on the terms of the stapling arrangement.

    When you dispose of your stapled securities, you must divide the capital proceeds (on a reasonable basis) between the securities that make up the stapled security and then work out whether you have made a capital gain or capital loss on each security.

    For examples covering stapled securities, see the Guide to capital gains tax 2009.

    Non-assessable payments

    There can be non-assessable payments for both shares and units.

    Non-assessable payments from a company to a shareholder

    Non-assessable payments to shareholders are usually called a return of capital. If you received a payment from a company in respect of your shares and it was not a dividend, you deduct the amount of the payment from both the cost base and the reduced cost base of your shares.

    If the non-assessable payment is greater than the cost base of your shares, you include the excess as a capital gain. If you use the indexation method to work out the amount of this capital gain you cannot use the discount method to work out a capital gain when you later sell the shares or units.

    Non-assessable payments from a managed fund to a unit holder

    The treatment of these payments is similar to non-assessable payments from a company to a shareholder. For more information, see chapter C2.

    Non-assessable payments under a demerger

    If you receive a non-assessable payment under an eligible demerger, you do not deduct the payment from the cost base and reduced cost base of your shares or units. Instead, you make adjustments to your cost base and reduced cost base under the demerger rules. You may make a capital gain on the non-assessable payment if it exceeds the cost base of your original share or unit, although you will be able to choose rollover.

    An eligible demerger is one that happens on or after 1 July 2002 and satisfies certain tests. The head entity will normally advise shareholders or unit holders if this is the case.

    For more information, see the Guide to capital gains tax 2009.

    Share buy-backs

    If you disposed of shares back to a company under a buy-back arrangement, you may have made a capital gain or capital loss.

    You compare the capital proceeds with your cost base and reduced cost base to work out whether you have made a capital gain or capital loss.

    The time you make the capital gain or capital loss will depend on the conditions of the particular buy-back offer.

    If shares in a company:

    • are not bought back by the company in the ordinary course of business of a stock exchange - for example, the company writes to shareholders offering to buy their shares (commonly referred to as 'off-market share buy-back'), and
    • the buy-back price is less than what the market value of the share would have been if the buy-back hadn't occurred and was never proposed,

    the capital proceeds are taken to be what the share's market value would have been if the buy-back hadn't occurred and was never proposed, minus the amount of any dividend paid under the buy-back. In this situation, the company may provide you with that market value or, if the company obtained a class ruling from the Tax Office, you can find out the amount by visiting our website at www.ato.gov.au

    Example 19: Off-market share buy-back including dividend

    Ranjini bought 10,000 shares in Company M in January 2003 at a cost of $6 per share, including brokerage.

    In January 2009, the company wrote to its shareholders advising them it was offering to buy back 10% of their shares for $9.60 each. The buy-back price was to include a franked dividend of $1.40 per share (and each dividend was to carry a franking credit of $0.60).

    Ranjini applied to participate in the buy-back to sell 1,000 of her shares.

    Company M approved the buy-back on 1 May 2009 on the terms anticipated in its earlier letter to shareholders.

    The market value of Company M shares at the time of the buy-back (if the buy-back did not occur and was never proposed) is $10.20.

    Ranjini received a cheque for $9,600 (1,000 shares × $9.60) on 8 June 2009.

    Because it was an off-market share buy-back and the buy-back price was less that what the market value of the share would have been if the buy-back hadn't occurred, Ranjini works out her capital gain for 2008-09 as follows:

    Capital proceeds per share:

    = $10.20 (market value) − $1.40 (dividend)

    = $8.80

    Capital proceeds

    Total capital gain

    $8.80 × 1,000 shares

    $8,800

    Cost base

    $6 × 1,000 shares

    $6,000

    Capital gain
    (before applying any discount)

    $8,800 − $6,000

    $2,800

    Ranjini takes her capital gain into account in completing item 18 on her tax return (supplementary section). She also includes her dividend by writing $1,400 (her franked dividend amount) at T item 12 on her tax return and $600 (her franking credit) at U item 12 on her tax return.

    End of example

    Takeovers and mergers

    If a company in which you held shares was taken over and you received new shares in the takeover company, you may be entitled to a scrip-for-scrip rollover for any capital gain you made. This means you can defer the capital gain made on the disposal of your old shares until a later CGT event happens to your new shares. Usually, the takeover company would advise you if the scrip-for-scrip rollover conditions were satisfied.

    If you also received some cash from the takeover company, you only get rollover on the proportion of the original shares for which you received shares in the takeover company. You will need to apportion the cost base of the original shares between the replacement shares and the cash.

    If the scrip-for-scrip conditions were not satisfied, your capital proceeds for your original shares will be the total of any cash and the market value of the new shares you received.

    Scrip-for-scrip rollover may also be available to the extent that units in a managed fund are exchanged for units in another managed fund.

    For more information about takeovers and mergers, see the Guide to capital gains tax 2009.

    Demergers

    A demerger involves the restructuring of a corporate or fixed trust group by splitting its operations into two or more entities or groups. Under a demerger, the owners of the head entity of the group (that is, the shareholders of the company or unit holders of the trust) acquire a direct interest (shares or units) in an entity that was formerly part of the group.

    If you owned interests in a company or fixed trust that is the head entity of a demerger group and you received new interests in the demerged company or trust, you may be entitled to a demerger rollover.

    Generally, the head entity undertaking the demerger will advise whether you are entitled to rollover, but you should seek our advice if you are in any doubt. The Tax Office may have provided advice in the form of a class ruling on a specific demerger confirming that a rollover is available. You can find out by visiting our website at www.ato.gov.au

    Even if you do not choose a rollover, you must recalculate the cost base and reduced cost base of each of your original interests in the head entity and your new interests in the demerged entity.

    Our website has a demergers calculator to help you make these calculations. It also has other products and information to help you, see www.ato.gov.au/demergers.

    Dividend reinvestment plans

    Under these plans, shareholders can choose to use their dividend to acquire additional shares in the company instead of receiving a cash payment. For CGT purposes, you are treated as if you received a cash dividend and then used it to buy additional shares. Each share (or parcel of shares) received in this way is treated as a separate asset and you must make a separate calculation when you sell them.

    For more information about the issues covered in this chapter, including demergers, see the Guide to capital gains tax 2009 and You and your shares 2009 (NAT 2632).

    For information on key transactions involving major companies and other institutions see Key events for Australian shareholders 2008-09. These transactions include mergers, takeovers, demergers, demutualisations, returns of capital, share buy-backs, and declarations by liquidators and administrators that shares are worthless.

    Bonus shares and bonus units

    Bonus shares are additional shares received by a shareholder in respect of shares already owned. These shares may be received by a shareholder wholly or partly as a dividend. The shareholder may also pay an amount to get them.

    Bonus units may also be received in a similar way.

    The CGT rules for bonus shares and bonus units are very similar. If you have sold bonus shares or bonus units, see the Guide to capital gains tax 2009.

    Dividends paid by listed investment companies (LIC) that include a LIC capital gain

    If a LIC pays a dividend to you that includes a LIC capital gain amount, you may be entitled to an income tax deduction.

    You can claim a deduction if:

    • you are an individual
    • you were an Australian resident when a LIC paid you a dividend, and
    • the dividend included a LIC capital gain amount.

    The amount of the deduction is 50% of the LIC capital gain amount. The LIC capital gain amount will be shown separately on your dividend statement.

    You do not write the LIC capital gain amount at item 18.

    Example 20: LIC capital gains

    Ben, an Australian resident, was a shareholder in XYZ Ltd, a LIC. In the 2008-09 income year, Ben received a dividend from XYZ Ltd of $70,000 including a LIC capital gain amount of $50,000. Ben can claim a $30,000 franking credit relating to the dividend. Ben includes on his tax return the following amounts:

    Franked amount
    (shown at T item 12 on his tax return)

    $70,000

    Franking credit
    (shown at U item 12 on his tax return)

    $30,000

    Amount included in total income

    $100,000

    less deduction for LIC capital gain
    (shown as deduction at item D7 on his tax return

    $25,000

    Net amount included in income

    $75,000

     

    End of example
    Last modified: 21 Oct 2009QC 27955