• Using the capital gain or capital loss worksheet for shares

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    In the example, Tony uses the indexation method, the discount method and the 'other' method to calculate his capital gain so he can decide which method gives him the best result. This example shows you how to complete the Capital gain or capital loss worksheet to calculate your capital gain when you acquire or dispose of shares.

    See chapter 2 for a description of each method and when you can use each one.

    Remember that if you bought and sold your shares within 12 months, you must use the 'other' method to calculate your capital gain. If you owned your shares for 12 months or more, you may be able to use either the discount method or the indexation method, whichever gives you the better result.

    Because each share in a parcel of shares is a separate CGT asset, you can use different methods to work out the amount of any capital gain for shares within a parcel. This may be to your advantage if you have capital losses to apply. See the example of Clare.

    Example: Using all three methods to calculate a capital gain

    On 1 July 1993, Tony bought 10,000 shares in Kimbin Ltd for $2 each. He paid stockbrokers fee of $250 and stamp duty of $50.

    On 1 July 2005, Kimbin Ltd offered each of its shareholders one right for each four shares owned to acquire shares in the company for $1.80 each. The market value of the shares at the time was $2.50. On 1 August 2005, Tony exercised all rights and paid $1.80 per share.

    On 1 December 2005, Tony sold all his shares in Kimbin Ltd for $3.00 each. He incurred stockbrokers fee of $500 and stamp duty of $50.

    Separate records

    Tony has two parcels of shares - those he acquired on 1 July 1993 and those he acquired at the time he exercised all rights, 1 August 2005. He needs to keep separate records for each parcel and apportion the stockbrokers fee of $500 and stamp duty of $50.

    The completed Capital gain or capital loss worksheets on the following pages show how Tony can evaluate which method gives him the best result.

    He uses the 'other' method for the 2,500 shares he owned for less than 12 months, as he has no choice:

    $7,500
    capital proceeds

    -

    $4,610
    cost base

    =

    $2,890
    capital gain

    For the 10,000 shares he has owned for 12 months or more, his capital gain using the indexation method would be:

    $30,000
    capital proceeds

    -

    $23,257
    cost base

    =

    $6,743
    capital gain

    This means his net capital gain would be:

    $2,890
    'other' method

    +

    $6,743
    indexation method

    =

    $9,633
    net capital gain

    If Tony uses the discount method instead (assuming he has no capital losses), his capital gain would be:

    $30,000 - $20,740 = $9,260

    He applies the CGT discount of 50%:

    $9,260 x 50% = $4,630

    This means his net capital gain would be:

    $2,890
    'other' method

    +

    $4,630
    discount method

    =

    $7,520
    net capital gain

    In this case he would choose the discount method rather than the indexation method, as it gives him the better result (a lower net capital gain).

    Dividends paid by listed investment companies (LIC) that include LIC capital gain

    If a LIC pays a dividend to you that includes a LIC capital gain amount, you may be entitled to an income tax deduction.

    You can claim a deduction if:

    • you are an individual
    • you were an Australian resident when a LIC paid you a dividend
    • the dividend was paid to you after 1 July 2001, and
    • the dividend included a LIC capital gain amount.

    The amount of the deduction is 50% of the LIC capital gain amount. The LIC capital gain amount will be shown separately on your dividend statement.

    You do not show the LIC capital gain amount at item 17 on your tax return (supplementary section) - or item 9 if you use the tax return for retirees.

    Example: LIC capital gain

    Ben, an Australian resident, was a shareholder in XYZ Ltd, a LIC. For the 2005-06 income year, Ben received a fully franked dividend from XYZ Ltd of $70,000 including a LIC capital gain amount of $50,000. Ben includes on his tax return the following amounts:

    Franked dividend (shown at T item 11 in his tax return)

    $70,000

    plus franking credit (shown at U item 11 in his tax return)

    $30,000

     

    $100,000

    less deduction for LIC capital gain (shown as deduction at item D7 on his tax return)

    $25,000

    Net amount included in taxable income

    $75,000

    Note

    If Ben uses the tax return for retirees, he shows the amounts as follows: franked dividend at T item 8, franking credit at U item 8 and deduction for LIC capital gain at item 12.

    Last modified: 06 Oct 2009QC 18504