• How do I treat the capital loss or capital gain?

    Capital loss

    If you made a capital loss you can offset this loss against other capital gains you made in the 2005-06 income year. If you are unable to offset all the capital loss, you can carry the balance forward to offset against future capital gains. You must include these details when completing item 17 on your 2005-06 tax return (supplementary section).

    Capital gain

    If you made a capital gain on the disposal of your Westpac shares, you must include it in your calculations when completing item 17 on your 2005-06 tax return (supplementary section).

    The method you use to work out the amount to include in your item 17 calculations depends on when you acquired those shares. The following table sets out what method you can use.

    If you acquired your Westpac shares:

    you calculate your capital gain using the:

    before 21 September 1999

    indexed cost base or discount method, whichever gives you the better result*.

    Note: if you have capital losses to apply against capital gains you made on shares acquired before 21 September 1999, you may want to use the indexation method for some of your shares and the discount method for the others. (For more information, see the example of Clare in chapter 2 of the Guide to capital gains tax).

    after 21 September 1999 and before 19 December 2004

    discount method (after applying any capital losses - including unapplied capital losses from previous years).

    on or after 19 December 2004

    other method.

    Note

    * If you choose to index the cost base of shares you acquired before 21 September 1999, you cannot apply the CGT discount when you dispose of them.

    For information on the different methods you can use to work out your capital gain, see the Guide to capital gains tax.

    Example 1: Capital gain

    Mario purchased 2,000 Westpac shares in November 1990. At the time of the buy-back on 19 December 2005, the cost base of these shares (including any brokerage and stamp duty) was $8,080, or $4.04 per share.

    Mario sold 1,000 of his shares in the buy-back. He received a cheque for $19,130 (1,000 x $19.13). This amount was made up of:

    • a capital payment for his shares of $4,000 (1,000 x $4.00), and
    • a fully franked dividend of $15,130.

    His dividend statement showed a fully franked dividend of $15,130 and a franking credit of $6,484.29.

    Recording the dividend on the tax return

    On his tax return for the 2005-06 income year, Mario includes both the franked dividend of $15,130 and the franking credit of $6,484.29 in his assessable income (at item 11). (When his tax return is processed, the Tax Office automatically also allows him the franking credit as a tax offset, which reduces his tax payable.)

    Calculating the capital gain

    Mario made a capital gain from the sale of the 1,000 shares as follows:

    Capital proceeds (1,000 x $5.18*)

    $5,180

    less total cost base (1,000 x $4.04)

    $4,040

    Capital gain

    $1,140

    Note

    * For capital gains tax purposes, Mario is deemed to have received $5.18 as the capital component of the buy-back price. See Class Ruling CR 2006/6 - Income tax: off-market share buy-back: Westpac Bank Limited for more details.

    Because Mario had held his shares for more than 12 months, he can apply the CGT discount to his capital gain* (if he had capital losses he would offset them against his capital gain before applying the discount). If Mario chooses to apply the CGT discount, he will include a $570 ($1,140 x 50%) net capital gain on his 2005-06 tax return.

    Note

    * Because he acquired his shares before September 1999, Mario could choose to index the cost base of his shares instead of applying the discount. For information on how to index a cost base to work out your capital gain, see the Guide to capital gains tax.

    Recording the capital gain on the tax return

    Assuming he had no other capital gains and no capital losses for the 2005-06 year, Mario would complete item 17 on his 2006 tax return (supplementary section) showing:

    Did you have a capital gains tax event during the year? Yes

    Net capital gain: $570

    Total current year capital gains: $1,140

    Example 2: Capital loss

    Loretta bought 200 Westpac shares in January 2003. At the time of the share buy-back, on 19 December 2005, the cost base of these shares (including any brokerage and stamp duty) was $3,050, or $15.25 per share.

    Loretta sold all her shares in the buy-back and received a cheque for $3,826 (200 x $19.13). This amount was made up of:

    • a capital payment for her shares of $800 (200 x $4.00), and
    • a fully franked dividend of $3,026.

    Her dividend statement showed a fully franked dividend of $3,026 and a franking credit of $1,296.86.

    Recording the dividend on the tax return

    In Loretta's tax return for the 2005-06 income year, she includes both the franked dividend of $3,026 and the franking credit of $1,296.86 in her assessable income (at item 11). (When her tax return is processed, the Tax Office automatically also allows her the franking credit as a tax offset, which reduces her tax payable.)

    Calculating the net capital loss

    Loretta makes a capital loss from the sale of 200 shares as follows:

    Reduced cost base (200 x $15.25)

    $3,050

    less capital proceeds (200 x $5.18*)

    $1,036

    Capital loss

    $2,014

    Note

    * For capital gains tax purposes, Loretta is deemed to have received $5.18 as the capital component of the buy-back price. See Class Ruling CR 2006/6 - Income tax: off-market share buy-back: Westpac Bank Limited for more details.

    Loretta has made a capital gain of $850 on the sale of other shares that she held during the 2005-06 income year. Loretta must offset the $850 capital gain against her capital loss. She can carry the unused $1,164 ($2,014 - $850) capital losses forward until she is able to offset them against a capital gain in a future year.

    Recording the capital loss on the tax return

    Loretta will complete item 17 on the 2005-06 tax return (supplementary section) showing:

    Did you have a capital gains tax event during the year? Yes

    Net capital gain: $0

    Total current year capital gains: $850

    Net capital losses carried forward to later income years: $1,164.

      Last modified: 14 Dec 2007QC 18802