You can obtain shares in several ways, most commonly by buying them. You should keep track of your share transactions so you can claim everything you're entitled to and work out your tax accurately.
You can obtain shares through:
- Buying shares
- Inherited shares
- Shares as a gift
- Employee share scheme
- Bonus shares
- Demutualisation of an insurance company
- dividend reinvestment plans of companies in which you hold shares
- them being transferred to you as the result of a marriage or relationship breakdown
- a conversion of notes to shares
- mergers and takeovers of companies in which you hold shares.
Even if you didn't pay anything for your shares, you should find out the market value at the time you obtain them – otherwise, you may pay more tax than necessary when you dispose of them.
In some circumstances, you may be considered the owner of shares even if they were purchased in your child's name.
A common way to obtain shares is to buy them. Shares are usually purchased through a stockbroker or an initial public offering or share purchase plans. When you buy shares, you may decide to be a share trader or share investor.
Share trader or share investor
Depending on whether you are a share trader or a share investor, you will deal with income and expenses differently. A share trader conducts business activities for the purpose of earning income from buying and selling shares. A share investor invests in shares with the intention of earning income from dividends and capital growth, but doesn't carry on business activities.
- you treat inherited shares in the same way as any other capital gains tax assets
- where the deceased acquired the shares before 20 September 1985, you must use the market value on the day the person died, not the market value on the day you received the shares.
A family member may give shares to relatives, for example, a parent gives shares to their child. If you:
- give shares as a gift, you
- treat the shares as if you disposed of them at their market value on the day you gave them as a gift
- may have a capital gain or a capital loss – you must include any applicable capital gain or loss in your tax return for the year you gave away the shares
- receive shares as a gift, you treat shares as though you received them at their market value on the date you received them.
The tax law contains special rules for shares and rights acquired under employee share schemes, for both income tax and capital gains tax purposes.
Bonus shares are extra shares you receive for shares you already hold in a company. Receiving bonus shares can alter the cost base (costs of ownership) of both your original and bonus shares.
For more information, see Guide to capital gains tax – Bonus shares.
A demerger occurs when a company restructures by splitting its operations into two or more entities or groups. If you own shares in a company that demerges, you may:
- receive new shares or cash
- be entitled to a demerger rollover.
Make sure you:
- are entitled to a rollover before you choose to use it
- declare any capital gains or losses you made under the demerger.
In some demergers, you may be eligible to choose to rollover any capital gain or capital loss you make. This means you don't report your capital gain or capital loss the year the demerger occurs. Instead, you settle your tax obligations in the year that another CGT event happens to those shares.
If you hold a policy in an insurance company that demutualises, you may be subject to capital gains tax either at the time of the demutualisation or when you sell your shares.
Capital losses only happen when you dispose of the investments, such as selling them.
If the price drops but you continue to own the investment, it's referred to as a 'paper loss'. You can't claim 'paper losses' on investments.
If you have a capital loss from the disposal of investments, you can offset this against capital gains. You can't offset the loss against other types of income.
You should declare the loss in your tax return and it can be carried forward to offset against future capital gains.
You can't claim a deduction for some costs related to purchasing your shares, such as brokerage fees and stamp duty. However, you can include them in the cost base (cost of ownership – which you deduct from what you receive when you dispose of the shares) to work out your capital gain or capital loss.
You need to keep proof of all your share transactions from the beginning to ensure you can claim everything you're entitled to.
If you have used a capital protected product (capital protected borrowing) to fund the acquisition of your shares, you may need to find out how to calculate deductions for a capital protected borrowing.
There are a number of ways to check the legitimacy of an investment and its promoter:
- Check a promoter's licence at moneysmart.gov.au/investingExternal Link.
- Check if the scheme has a product ruling.
- Read the product disclosure statement (PDS) or prospectus for the investment.
- Get independent advice from an adviser who has no connection with the seller or the investment scheme.
- Check our taxpayer alerts to find out if the scheme has any of the characteristics described in the alerts.
- The date of purchase and reinvestment.
- The purchase amount or value.
- Details of any non-assessable payments to you.
- The date and amount of any calls (if shares were partly paid).
- The date of sale and sale price (if you sell them).
- Brokerage costs or commissions paid to brokers when you buy or sell.
- Details of events such as share splits, share consolidations, returns of capital, takeovers, mergers, demergers and bonus share issues.
- Details of capital losses made in previous years – you may be able to offset these losses against future capital gains.
- Dividend or distribution statements (Standard Distribution Statements or Attribution managed investment trust member annual (AMMA) statement).
For more information on records to keep, see Keeping good investment records.Find out about obtaining shares and what deductions you can claim when obtaining shares.