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How capital gains tax affects shares and units

Last updated 30 August 2010

For capital gains tax 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 acquire 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. This is known as a CGT event A1. You will find a list of all CGT events at appendix 3.

Note: New terms

There may be terms in this chapter that are not familiar to you. Refer to chapter 1 in part A for more information or to the Explanation of terms in this guide.

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 chapter also deals with the receipt of non-assessable payments from a company (CGT event G1) while chapter 4 deals with non-assessable payments from a trust (CGT event E4). If you own shares in a company that has been placed in liquidation, CGT event G3 explains how you can choose to make a capital loss when the liquidator declares shares worthless.

There are a number of special capital gains tax 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 chapter explains these rules and contains examples showing how they work in practice. The flowcharts at appendix 4 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, obtain a copy of You and your shares.

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