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How capital gains tax affects shares and units

Last updated 7 July 2015

For CGT purposes, shares in a company or units in a unit trust are treated in the same way as any other assets.

As a general rule, if you acquired any shares or units on or after 20 September 1985, you may have to pay tax on any capital gain you make when a CGT event happens to them. This would usually be when you sell or otherwise dispose of them. It also includes where you redeem units in a managed fund by switching them from one fund to another. In these cases, CGT event A1 happens. There is a list of all CGT events at appendix 1.

Profits on the sale of shares held in carrying on a business of share trading are included as ordinary income rather than as capital gains. For more information, see Carrying on a business of share trading. In addition, if the TOFA rules apply to you and you have elected to have certain tax-timing methods apply, gains and losses from trading of shares and units will be brought to account under those rules rather than as capital gains or capital losses. For more information about the TOFA rules, see Guide to the taxation of financial arrangements (TOFA) rules.

New terms

We may use some terms that are new to you. These words are explained in Definitions. Generally, they are also explained in detail in the section where they first appear.

A CGT event might happen to shares even if a change in their ownership is involuntary, for example, if the company in which you hold shares is taken over or merges with another company. This may result in a capital gain or capital loss.

This section also deals with the receipt of non-assessable payments from a company (CGT event G1) while Trust distributions deals with non-assessable payments from a trust (CGT event E4).

If you own shares in a company that has been placed in liquidation or administration, CGT event G3 lets you choose to make a capital loss when the liquidator or administrator declares the shares (or other financial instruments) worthless.

There are a number of special CGT rules if you receive such things as bonus shares, bonus units, rights, options or non-assessable payments from a company or trust. Special rules also apply if you buy convertible notes or participate in an employee share scheme or a dividend reinvestment plan.

The rest of this section explains these rules and has examples showing how they work in practice. The flowcharts at appendix 3 will also help you work out whether the special rules apply to you.

If you need more information about how other income tax provisions affect your share investments, see You and your shares 2015 (NAT 2632).