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 following steps (1–11) 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 can be:
- the amount you receive from the purchaser
- the amount or value of shares or other property you receive on a merger or 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
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 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)
- any costs you incurred in establishing, maintaining and defending your ownership of it.
You may also need to adjust 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 part B3 (shares) and part C2 (units).
For more information on how to determine your cost base and reduced cost base, see Guide to capital gains tax 2018.
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 in an attribution managed investment trust (AMIT), you may need to make upwards or downwards adjustments to the cost base and reduced cost base of your units, depending on your AMIT cost base net amount. Your fund should advise you of your AMIT cost base net amount (and other relevant amounts) in your AMMA statement.
For units in other funds, you may need to make downwards 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 or 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 chapter C1.
If you have any capital losses, do not deduct them from the capital gains before writing the total amount at H.
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
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:
- 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)
- capital gains calculated using the indexation method, and then
- 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. For more information, see Guide to capital gains tax 2018.
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
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
- 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% = $400End 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).
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
Go to chapter B2.
Step 11 does not apply if you have a net capital gain.
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