A foreign hybrid is an entity that is taxed in Australia as a company but taxed overseas as a partnership. This can include a limited partnership, a limited liability partnership and a US limited liability company.
If you have an investment in a foreign hybrid (referred to as being a member of a foreign hybrid), you are treated for Australian tax purposes as having an interest in each asset of the partnership.
As a consequence, any capital gain or capital loss made in relation to the assets of a foreign hybrid is taken to be made by the member.
General value shifting regime (GVSR)
If you own shares in a company or units (or other fixed interests) in a trust, you may be affected by value shifting rules. These rules may apply to you if:
- you have interests in a company or trust in which equity or loan interests have been issued or bought back at other than market value, or varied such that the values of some interests have increased while others have decreased (direct value shifts on interests), or
- you have interests in an entity whose dealings (such as providing loans or other services, or transferring assets) with another entity are neither at market value nor arm’s length and both entities are under the same control or ownership (indirect value shifting).
See also:
Using the capital gain or capital loss worksheet for shares
In example 46, Tony uses the indexation method, the discount method and the 'other' method to calculate his capital gain so he can decide which method gives him the best result. To calculate your capital gain when you acquire or dispose of shares, see how to complete the Capital gain or capital loss worksheet (PDF 148KB)This link will download a file.
For a description of each method and when you can use each one, see How to work out your capital gain or capital loss.
Remember that if you bought and sold your shares within 12 months, you must use the 'other' method to calculate your capital gain. If you owned your shares for 12 months or more, you may be able to use either the discount method or the indexation method, whichever gives you the better result.
Because each share in a parcel of shares is a separate CGT asset, you can use different methods to work out the amount of any capital gain for shares within a parcel. This may be to your advantage if you have capital losses to apply. See example 12.
Example 46: Using all three methods to calculate a capital gain
On 1 July 1994, Tony bought 10,000 shares in Kimbin Ltd for $2 each. He paid brokerage of $250 and stamp duty of $50.
On 1 July 2020, Kimbin Ltd offered each of its shareholders one right for each four shares owned to acquire shares in the company for $1.80 each. The market value of the shares at the time was $2.50. On 1 August 2020, Tony exercised all rights and paid $1.80 per share.
On 1 December 2020, Tony sold all his shares in Kimbin Ltd for $3.00 each. He incurred brokerage of $500 and stamp duty of $50.
Separate records
Tony has two parcels of shares, those he acquired on 1 July 1994 (10,000 shares) and those he acquired at the time he exercised all rights, 1 August 2020 (2,500 shares). He needs to keep separate records for each parcel and apportion the sale brokerage of $500 and stamp duty of $50.
The completed Capital gain or capital loss worksheet (PDF 96KB)This link will download a file show how Tony can evaluate which method gives him the best result.
He uses the 'other' method for the 2,500 shares he owned for less than 12 months, as he has no choice:
$7,500 capital proceeds − $4,610 cost base = $2,890 capital gain
For the 10,000 shares he has owned for more than 12 months, his capital gain using the indexation method would be:
$30,000 capital proceeds − $23,257 cost base = $6,743 capital gain
This means his net capital gain would be:
$2,890 'other' method + $6,743 indexation method = $9,633 net capital gain
For the 10,000 shares if Tony uses the discount method instead (assuming he has no capital losses), his capital gain would be:
$30,000 − $20,740 = $9,260
He applies the CGT discount of 50%:
$9,260 × 50% = $4,630
This means his net capital gain would be:
$2,890 'other' method + $4,630 discount method = $7,520 net capital gain
In this case, for the parcel of 10,000 shares he would choose the discount method rather than the indexation method, as it gives him the better result (a lower net capital gain).
End of exampleDividend paid by a listed investment company (LIC) that includes LIC capital gain
If an LIC pays a dividend to you that includes an 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 an LIC paid you a dividend, and
- the dividend included an 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 show the LIC capital gain amount at item 18 on your tax return (supplementary section).
Ben, an Australian resident, is a shareholder in XYZ Ltd, a LIC. For 2020–21, Ben received a fully franked dividend from XYZ Ltd of $70,000 including an LIC capital gain amount of $50,000. Ben includes on his tax return the following amounts:
Franked dividend (written at T item 11 in his tax return) |
$70,000 |
plus franking credit (written at U item 11 in his tax return) |
$30,000 |
Equals |
$100,000 |
less 50% deduction for LIC capital gain (shown as a deduction at item D8 on his tax return) |
$25,000 |
Net amount included in taxable income |
$75,000 |
End of example