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Sometimes taxpayers own shares or units that they may have acquired at different times. This can happen as people decide to increase their investment in a particular company or unit trust. A common question people ask when they dispose of only part of their investment is how to identify the particular shares or units they have disposed of.
This can be very important because shares or units bought at different times may have different amounts included in their cost. In calculating the capital gain or capital loss when disposing of only part of an investment, you need to be able to identify which ones you have disposed of. Also, when you dispose of any shares or units you acquired before 20 September 1985, any capital gain or capital loss you make is generally disregarded.
If you have the relevant records (for example, share certificates), you may be able to identify which particular shares or units you have disposed of. In other cases, the Commissioner will accept your selection of the identity of shares disposed of.
Alternatively, you may wish to use a 'first in, first out' basis where you treat the first shares or units you bought as being the first you disposed of.
In limited circumstances, the ATO will also accept an average cost method to determine the cost of the shares disposed of. This average cost method can be used only when:
- the shares are in the same company
- the shares are acquired on the same day
- the shares have identical rights and obligations
- you are not required to use market value for cost base purposes.
Identifying when shares or units were acquired
Boris bought 1000 shares in WOA Ltd on 1 July 1997. He bought another 3000 shares in the company on 1 July 2001.
In December 2001, WOA Ltd issued Boris with a CHESS statement for his 4000 shares. When he sold 1500 of the shares on 1 January 2002, he was not sure whether they were the shares he bought in 2001 or whether they included the shares bought in 1997.
Because Boris could not identify when he bought the particular shares he sold, he decided to use the 'first in, first out' method and nominated the 1000 shares bought in 1997 plus 500 of the shares bought in 2001.
Last modified: 06 Oct 2009QC 27417