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.
Sonya bought 1,000 shares in Tulip Ltd for $1,500 including brokerage and sold them less than 12 months later 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) as follows:
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 more than 12 months later. 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 = 68.7
CPI for June 1999 quarter = 68.1
Indexation factor = 68.7 ÷ 68.1 = 1.009
His indexed cost base is worked out as follows:
His cost ($1,275) × 1.009 = $1,286
So his capital gain is:
Capital proceeds $1,595
less Indexed cost base $1,286
Capital gain $309
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 (see 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:
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. If the fund was an AMIT, Andrew's cost base may have been increased or decreased, and the capital gain should be calculated to reflect his adjusted cost base. 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 last March 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 = 68.7
CPI for December 1986 quarter = 44.4
Indexation factor = 68.7 ÷ 44.4 = 1.547
Her indexed cost base is:
$2,500 × 1.547 = $3,868.00
So her capital gain is calculated as follows:
Capital proceeds |
$4,500 |
less Indexed cost base |
$3,868 |
Capital gain |
$632 |
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 (see 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:
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 and redeemed them less than 12 months later in June 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 2016–17 and does not have any capital losses, Colin completes item 18 on his tax return (supplementary section) as follows:
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. If the fund was an AMIT, Colin's base may have been increased or decreased, and the capital gain should be calculated to reflect his adjusted cost base. 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 last February. 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 |
$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:
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 last March for $2,300 and paid $50 brokerage costs. Mario also made a capital loss of $350 on some shares he sold in 1999–2000 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 2016–17 = $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:
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 a previous year.
Clare sold a parcel of 500 shares last March 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 for the current income year, 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 |
$8,078 (see note) |
$7,500 |
Capital gain |
$4,422 |
$5,000 |
less capital losses |
$3,500 |
$3,500 |
Equals |
$922 |
$1,500 |
50% CGT discount |
Not applicable |
$750 |
Net capital gain |
$922 |
$750 |
Note: (68.7 ÷ 63.8 = 1.077) ($7,500 × 1.077 = $8,078)
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 396 (see note 2) shares and the discount method to the remaining 104.
Note 2: To calculate this, Clare worked out the capital gain made on each share using the indexation method ($4,422 ÷ 500 = 8.84 and divided the capital loss by this amount ($3,500 ÷ 8.84 = 396).
She works out her net capital gain as follows:
Indexation method (396 shares)
Capital proceeds ($25 each) |
$9,900 |
Cost base (396 × $15 × 1.077) |
$6,397 |
Capital gain |
$3,503 |
less capital losses |
$3,500 |
Net capital gain |
3 |
Discount method (104 shares)
Capital proceeds ($25 each) |
$2,600 |
Cost base (104 × $15) |
$1,560 |
Capital gain |
$1,040 |
less 50% CGT discount |
$520 |
Net capital gain |
$520 |
As she has no other capital gains or capital losses, Clare does not write anything at V, writes $4,543 at H ($3,503 + $1,040) and completes item 18 on her tax return (supplementary section) as follows:
End of example