Example

Justin sold some land and has a $10,000 capital gain under the discount method (before applying the CGT discount) or a $7,000 capital gain under the indexation method. If Justin has no capital losses the discount method will produce the smaller capital gain (that is, $5,000).

However, Justin also made a capital loss of $5,000 on the sale of some shares. He will be better off using the indexation method to work out the capital gain from the sale of his land. Under this method his net capital gain is $2,000 ($7,000 − $5,000). If he used the discount method his net capital gain would be $2,500 [($10,000 − $5,000) × 50%].

Example: Capital gains on shares where you also have capital losses

Clare sold a parcel of 500 shares in March 2006 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 the sale. Clare had no other capital gains or capital losses in 2005-06, although she has $3,500 net capital losses carried forward from previous years.

Because Clare owned the shares for more than 12 months she can use the discount method or the indexation method to work out her capital gains - whichever gives her a better result. Clare decides to work out her net capital gain by applying both the discount method and the indexation method to the whole parcel of shares:

Note: $7,500 × (123.4 ÷ 114.7 = 1.076)

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 the sale of 395 (see Note 2) shares and the discount method to the remaining 105. She works out her net capital gain as follows:

It is probably best to calculate your capital gain using both methods to find out which gives you the better result. This is shown for Val in the worked example below and on the completed Capital gain or capital loss worksheet (PDF 119KB)This link will download a file.

Note 2: To calculate this, Clare worked out the capital gain made on each share using the indexation method ($4,430 ÷ 500 = 8.86) and divided the capital loss by this amount ($3,500 ÷ 8.86 = 395).

Example: Choosing the indexation or discount method

Val bought a property for $150,000 under a contract dated 24 June 1991. The contract provided for the payment of a deposit of $15,000 on that date, with the balance of $135,000 to be paid on settlement on 5 August 1991.

She paid stamp duty of $5,000 on 20 July 1991. On 5 August 1991, she received an account for solicitors fees of $2,000, which she paid as part of the settlement process.

She sold the property on 15 October 2005 (the day the contracts were exchanged) for $350,000. She incurred costs of $1,500 in solicitors fees and $4,000 in agents commission.

Assuming Val has not made any other capital losses or capital gains in the 2005-06 income year and does not have any unapplied net capital losses from earlier years, her net capital gain using the indexation method is $161,794.

Val's capital gain calculated using the discount method

As the discount method provides Val with the better result, she will show the amount worked out using the discount method on her tax return rather than the amount worked out using the indexation method.

The worksheet example (PDF 119KB)This link will download a file shows how Val might complete the Capital gain or capital loss worksheet (PDF 532KB)This link will download a file using both methods.