Personal investors guide to capital gains tax 2003
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About this guide
What this guide is designed to do
This guide is designed for a personal investor who has made a capital gain or capital loss from shares, units or managed funds in 2002-03. It explains the capital gains tax consequences of:
- the sale or gift (or other disposal) of shares or units
- the receipt of distributions of capital gains from managed funds, and
- the receipt of non-assessable payments from companies or managed funds.
It will help you complete:
- item 17 Capital gains on your 2003 tax return for individuals (supplementary section) shown below, or
- item 9 if you use the 2003 tax return for retirees. Note: You cannot use the 2003 tax return for retirees if you had a distribution from a managed fund during the year.
17 Capital gains | You must also print X in the YES box at G if you received a distribution of a capital gain from a trust. | |
Did you have a capital gains tax event during the year? | G No Yes | |
Net capital gain | A | |
Total current year capital gains | H | |
Net capital losses carried forward to later income years | V | |
If you sold or otherwise disposed of shares or units in a unit trust (including a managed fund) in 2002-03, you should read part A of this guide, then work through part B.
If you received a distribution of a capital gain from a managed fund in 2002-03, you should read part A of this guide, then work through part C.
Managed funds include property trusts, share trusts, equity trusts, growth trusts, imputation trusts and balanced trusts.
What this guide is not designed to do
This guide does not apply to gains or losses included as part of your income under other provisions of the tax law-for example, if you are a share trader. In addition, it does not explain more complex issues relating to shares (including employee shares), convertible notes and units. Nor does it apply to shares and units owned by companies, trusts and superannuation funds.
Also, this guide does not cover your capital gains tax consequences when you sell other assets such as:
- a rental property
- collectables (for example, jewellery, art, antiques and collections), and
- assets for personal use (for example, a boat you use for recreation).
For these, refer to the Guide to capital gains tax.
Small business concessions
If you are involved in the sale of shares or units in relation to a small business, you may wish to get the publication Guide to capital gains tax concessions for small business.
New terms
We may use some terms that are not familiar to you. These words are printed in bold the first time they are used and are explained in Explanation of terms.
If this guide does not fully cover your circumstances, please:
- visit our website at www.ato.gov.au
- get either of the publications Guide to capital gains tax or You and your shares.
- contact the Australian Taxation Office, or
- seek advice from a professional tax adviser.
Part A: How capital gains tax applies to you
What is capital gains tax and what rate of tax do you pay?
Note: new terms
We may use some terms that are not familiar to you. These words are printed in red in the paper document the first time they are used and are explained in Explanation of terms.
While we have used the word 'bought' rather than 'acquired' in our examples, you may have acquired your shares or units without paying for them (for example, as a gift or through an inheritance or through the demutualisation of an insurance company such as the NRMA or a demerger such as the demerger of BHP Steel Limited). If you acquired shares or units in any of these ways you may be subject to CGT when you sell them.
Similarly, we refer to 'selling' shares or units when you may have disposed of them in some other way (for example, giving them away or transferring them to someone else). All of these disposals are CGT events.
Reminder
You need to keep good records of any assets you have bought or sold so you can correctly work out the amount of capital gain or capital loss you have made when a CGT event happens. You must keep these records for five years after the CGT event has happened or after you claim any capital loss from that event against future capital gains.
You need to keep good records of any assets you have bought or sold so you can correctly work out the amount of capital gain or capital loss you have made when a CGT event happens. You must keep these records for five years after the CGT event has happened or after you claim any capital loss from that event against future capital gains.
Capital gains tax (CGT) refers to the tax you pay on any capital gain you make (for example, from the sale of a CGT asset) that you include on your annual income tax return. There is no separate tax on capital gains, it is merely a component of your income tax. You are taxed on your net capital gain at your marginal tax rate. Your net capital gain is the difference between your total capital gains for the year and your total capital losses (including capital losses from earlier years), less any CGT discount to which you are entitled.
When you sell an asset, this transaction is known as a CGT event. You can make a capital gain or capital loss if a CGT event happens or you receive a distribution of a capital gain from a managed fund. You show the total of your current year capital gains at H item 17 on your 2003 tax return for individuals (supplementary section), or at H item 9 if you use the 2003 tax return for retirees. (Note: You cannot use the tax return for retirees if you had a distribution from a managed fund during the year.) You show your net capital gain at A item 17 on your tax return, or at A item 9 if you use the tax return for retirees.
This guide only covers capital gains or capital losses from CGT assets that are shares, units or other interests in managed funds.
World-wide obligations
Australian residents can make a capital gain or capital loss if a CGT event happens to any of their assets anywhere in the world.
How to meet your CGT obligation
To meet your CGT obligations, you need to follow these three main steps:
Step 1 Decide whether a CGT event has happened.
Step 2 Work out the time of the CGT event.
Step 3 Calculate your capital gain or capital loss.
STEP 1 Decide whether a CGT event has happened
CGT events are the different types of transactions or events which attract CGT. A CGT event has happened if you have sold (or otherwise disposed of) your shares or units or other assets during 2002-03. Certain assets, such as a motor vehicle and assets acquired before 20 September 1985, are disregarded.
Examples of other CGT events that can happen to shares or units include:
- when a company makes a payment other than a dividend to you as a shareholder, or when a trust or fund makes a non-assessable payment to you as a unit holder
- when a liquidator declares that shares in a company are worthless, see appendix 1 for examples, and
- when shares in a company are cancelled because the company is wound up.
For information about other CGT events, please refer to the Guide to capital gains tax.
If a managed fund makes a capital gain and distributes part of that gain to you, you are treated as if you made a capital gain from a CGT event.
If a CGT event did not happen to any of your assets during 2002-03, print X in the NO box at G item 17 on your tax return, or at G item 9 if you use the tax return for retirees. (Note: You cannot use the 2003 tax return for retirees if you had a distribution from a managed fund during the year.)
If a CGT event happened, print X in the YES box. If the CGT event happened to your shares or units and the event is covered in this guide (see What this guide is designed to do), read on. Otherwise, refer to the Guide to capital gains tax.
STEP 2 Work out the time of the CGT event
The timing of a CGT event is important because it tells you which income year is affected by your capital gain or capital loss. If you sell an asset to someone else, the CGT event happens when you enter into the contract of sale. If there is no contract, the CGT event happens when you stop being the asset's owner.
If you received a distribution of a capital gain from a managed fund, you are taken to have made the capital gain in the income year shown on your statement from the managed fund.
STEP 3 Calculate your capital gain or capital loss
There are three ways of calculating your capital gain from the sale of your shares or units: the indexation method, the discount method and the 'other' method.
The indexation method allows you to increase the amount that your asset has cost (the cost base) by applying an indexation factor that is based on increases in the Consumer Price Index (CPI) up to September 1999.
The indexation method can only apply to assets that you acquired before 11:45am (by legal time in the ACT) on 21 September 1999.
If you use the discount method, you do not apply the indexation factor to the cost base but you can reduce your capital gain by the CGT discount of 50% provided you have owned the shares for at least 12 months.
For assets that qualify for both the indexation and discount methods, you can choose the method that gives you the better result. You do not have to choose the same method for all your shares or units even if they are in the same company or fund.
You must use the 'other' method for any shares or units you have bought and sold within 12 months (that is, when the indexation and discount methods do not apply). To calculate your capital gain using the 'other' method, you simply subtract your cost base from what you have received-your capital proceeds.
You make a capital loss from the sale of your shares or units if their reduced cost base is greater than your capital proceeds. You cannot index amounts included in your reduced cost base.
If you received a distribution of a capital gain from a managed fund, part C of this guide explains how you calculate the amount of that capital gain. You must use the same method as that chosen by the fund.
The following table explains and compares the three methods of calculating your capital gain.
Indexation method | Discount method | 'Other' method | |
Description of method | Allows you to increase the cost base by applying an indexation factor based on CPI. | Allows you to halve your capital gain | Basic method of subtracting the cost base from the capital proceeds |
When to use the method | Use for shares or units held for 12 months or more, if this method produces a better result than the discount method. Use only with assets acquired before 11.45am (by legal time in the ACT) on 21 September 1999. | Use for shares or units held for 12 months or more, if this method produces a better result than the indexation method | Use for shares or units if you have bought and sold them within 12 months (that is, when the indexation and discount methods do not apply). |
How to calculate your capital gain using the method | Apply the relevant indexation factor (see CPI table in appendix 2), then subtract the indexed cost base from the capital proceeds (see worked examples in chapter B2). | Subtract the cost base from the capital proceeds, deduct any capital losses, then divide by two (see worked examples in chapter B2). | Subtract the cost base from the capital proceeds (see chapter B1). |
Exceptions, exemptions, discounts or other concessions
There may be an exemption that allows you to disregard your capital gain or capital loss. For example, generally you disregard any capital gain or capital loss associated with any pre-CGT assets (that is, those you acquired before 20 September 1985).
There may be a roll-over that allows you to defer your capital gain or capital loss. For example, if a company in which you hold shares is taken over or merges with another company, you may have a CGT obligation if you are required to dispose of your existing shares. If you exchanged your existing shares for shares in the takeover company this income year, you may be able to defer or roll over some or all of your capital gain (but not capital loss) until a later CGT event happens to your replacement shares. This is known as scrip-for-scrip roll-over. (See notes 1, 2 and 3) Another example of a roll-over is in relation to transferring a CGT asset to your former spouse after a marriage breakdown. In this case, you may not have to pay CGT on the transfer, but CGT may need to be paid by your former spouse when a later CGT event happens to the asset. A further example of roll-over is demerger roll-over.
Selling a rental property
- If you have sold a rental property, have assets from a deceased estate or have several CGT events this income year, this guide does not provide you with enough detail. You need to read the publication Guide to capital gains tax to find out how to calculate and report your CGT obligation.
Records you need to keep
Most of the records you need to keep to work out your capital gain or capital loss when you dispose of shares in companies or units in unit trusts (including managed funds) will be given to you by the company, the unit trust manager or your stockbroker. It is important for you to keep everything they give you in relation to your shares and units.
These records will generally provide the following important information:
- the date of purchase of the shares or units
- the amount paid to purchase the shares or units
- details of any non-assessable payments made to you during the time you owned the shares or units
- the date and amount of any calls if shares were partly paid
- the sale price if you sell them, and
- any commissions paid to brokers when you buy or sell them.
Part B: Sale of shares or units
Chapter B1 How to work out your capital gain or capital loss
Note: new terms
- Some terms in this section may be new to you. They are printed in red the first time they are used and are explained in Explanation of terms at the back of this guide. While we have used the word 'bought' rather than 'acquired' in our examples, you may have acquired your asset without paying for it (for example, as a gift or through an inheritance or through the demutualisation of an insurance company such as the NRMA or a demerger such as the demerger of BHP Steel Limited). Similarly, we refer to 'selling' an asset, when you may have disposed of it in some other way (for example, by giving it away or transferring it to someone else).
To calculate your capital gain from the sale of shares or units in a unit trust (for example, a managed fund), the main steps are to:
- work out how much you have received from each CGT event (your capital proceeds)
- work out how much each CGT asset cost you (the cost base), and
- subtract 2 (the cost base) from 1 (the capital proceeds).
If you received more from the CGT event than the asset cost you (that is, the capital proceeds are greater than the cost base), the difference is your capital gain. The three ways of calculating your capital gain are described in step 3 of part A.
If you made a capital loss-that is, you received less from the CGT event than the asset cost you-you need to work out the reduced cost base for the asset. Generally, for shares, the cost base and reduced cost base are the same. If the reduced cost base is greater than the capital proceeds, the difference is your capital loss.
If the capital proceeds are less than the cost base but more than the reduced cost base, you have not made a capital gain or a capital loss.
The steps on the following pages show you the calculations required to work out your CGT obligation using the 'other' and discount methods. If you want to use the indexation method (by indexing your cost base for inflation) you will need to do this at step 2 and you may find it easier to follow the worked indexation examples in chapter B2.
You may find it useful to use the margins provided beside the following steps (in the paper publication) to do your own calculations so you can transfer the relevant amounts to item 17 on your tax return, or item 9 if you use the tax return for retirees. (Note: You cannot use the 2003 tax return for retirees if you had a distribution from a managed fund during the year.)
STEP 1 Work out your capital proceeds from the CGT event
The capital proceeds are what you receive, or are taken to receive, when you sell or otherwise dispose of your shares or units.
For example, with shares the capital proceeds may be:
- the amount you receive from the purchaser
- the amount or value of shares or other property you receive on a merger/ takeover, or
- the market value if you give shares away.
Example
- Fred sold his parcel of 1,000 shares for $6,000. Fred's capital proceeds are $6,000.
STEP 2 Work out the cost base of your asset
Indexing your cost base
- There are certain circumstances where a cost base may be indexed. This is called the indexation method and the cost base would then become an 'indexed' cost base. For more information, see part A of this guide or the worked examples in chapter B2.
The cost base of your asset is what your asset cost you, including certain incidental costs of buying and selling it as well as any costs you had in establishing, maintaining and defending your ownership of it. Incidental costs of buying or selling the asset are brokerage, legal fees, investment advisers' fees and stamp duty.
The cost base for an asset such as a share or unit may also need to be reduced by the amount of any non-assessable payment you received from the company or fund during the time you owned the share or unit. This is explained in chapter B3 (shares) and chapter C2 (units).
Interest you have paid on money borrowed to buy shares or units is not included in your cost base if you have claimed a deduction for it in any income year.
For shares, the cost base is usually the cost of buying the shares including brokerage and any stamp duty costs on selling the shares.
Example
- Fred had bought 1,000 shares at $5 each ($5,000). He was charged $50 brokerage and paid duties of $25. When he sold the shares he paid $50 brokerage.
- The cost base of his shares is $5,000 + $50 + $25 + $50 = $5,125.
STEP 3 Did you make a capital gain?
Subtract the amount in step 2 from the amount in step 1. If the capital proceeds are greater than the cost base, the difference is your capital gain.
Example
- As Fred sold his shares for $6,000, he subtracts the $5,125 from the $6,000 to arrive at $875.
- Fred made a capital gain of $875.
STEP 4 If you did not make a capital gain, work out the reduced cost base of the asset
If you did not make a capital gain, you need to calculate a reduced cost base of your asset before you can work out any capital loss.
The reduced cost base is the cost base less any amounts you need to exclude from it. Interest on borrowings and indexation are excluded.
Example
- In our example, Fred's cost base and reduced cost base for his shares are the same.
For shares, the cost base and reduced cost base are generally the same.
For units, adjustments may be needed to the cost base or reduced cost base depending on the types of amounts distributed. Your fund should advise you of these amounts in its statements:
- tax-deferred amount-this reduces the cost base and reduced cost base
- CGT-concession amount-if received BEFORE 1 July 2001, this reduces the cost base and reduced cost base (if received ON or AFTER 1 July 2001, it does not affect either your cost base or reduced cost base).
- tax-free amount-this reduces your reduced cost base only
- tax-exempted amount-this does not affect either your cost base or reduced cost base.
STEP 5 Did you make a capital loss?
If the capital proceeds are less than your reduced cost base, the difference is your capital loss.
Example
- If Fred had sold his shares for $4,000 instead of $6,000, he would have a capital loss of $1,125 (that is, his reduced cost base of $5,125 less his capital proceeds of $4,000).
STEP 6 Did you make neither a capital gain nor a capital loss?
If the capital proceeds are less than or equal to the cost base but more than the reduced cost base, you have not made a capital gain or a capital loss.
Example
- If Fred had sold his shares for $5,125, he would not have made a capital gain or a capital loss.
STEP 7 Work out your total current year capital gains
Write the total of all of your capital gains for the current year at H item 17 (or H item 9 if you use the tax return for retirees)
If you only had one asset, show the amount of the capital gain relating to that asset. If you have more than one asset (including assets other than shares and units) which resulted in a capital gain, you should include those capital gains in the total at H.
If you had a distribution from a managed fund you need to include this in your total capital gains. You can calculate the amount at step 3 in C1.
If you have any capital losses, do not deduct them from the capital gains before showing the total amount at H.
Example
- Fred does not have any other capital gains. Therefore, from step 3, he shows $875 at H item 17 on his tax return, or at H item 9 if he uses the tax return for retirees.
STEP 8 Applying capital losses against capital gains
If you have no capital losses from assets you disposed of this year nor a net capital loss from an earlier year that you were able to carry forward to this year, go to step 9.
If you had capital losses (including net capital losses from earlier years), deduct them from the amount you wrote at H. You may do this in the order that gives you the greatest benefit.
Offsetting your losses
You will probably get the greatest benefit if you deduct capital losses against:
- capital gains for which neither the indexation method nor the discount method applies (that is, if you bought and sold your shares within 12 months)
- capital gains calculated using the indexation method, and then
- capital gains to which the CGT discount can apply.
Note
Losses from personal use assets and collectables
- Remember a net capital loss from collectables can only be used to reduce capital gains from collectables. Losses from personal use assets are disregarded. Refer to the Guide to capital gains tax for more information.
If your capital losses (including net capital losses from earlier years) are greater than your capital gains, go to step 11.
Example
- If Fred had a net capital loss of $75 from some shares that he sold last year, he reduces his capital gain of $875 by $75. Fred's remaining capital gain is $800.
STEP 9 Applying the CGT discount
If you have any remaining capital gains you can now apply the CGT discount-if it is applicable-and reduce them by 50%.
Remember, you cannot apply the CGT discount to:
- capital gains calculated using the indexation method, and
- CGT assets you bought and sold within 12 months.
Example
- As Fred had owned his shares for at least 12 months, he can reduce his $800 gain by the CGT discount of 50% to arrive at a net capital gain of $400 (cents are not shown):
$800 x 50% = $400.
STEP 10 Work out your net capital gain
At A item 17 (or A item 9 if you use the tax return for retirees) you show the total of your remaining capital gains:
- calculated using the indexation method
- to which the CGT discount of 50% has been applied, and/ or
- calculated using the 'other' method.
Ignore step 11-it does not apply if you have a capital gain.
Example
- Fred shows his net capital gain of $400 at A item 17 on his tax return or A item 9 if he uses the tax return for retirees.
STEP 11 Work out your carry-forward losses
If your capital losses were greater than your capital gains, you were directed to this step from step 8.
If you have capital losses remaining, you should show '0' (zero) at A on your tax return.
At V , item 17 (or V item 9 if you use the tax return for retirees) show the amount by which your capital losses are greater than your capital gains. You can carry these capital losses forward to be applied against later year capital gains.
Example
- Continuing the example from step 5, if Fred has no other capital losses, he would show '0' (zero) at A and $1,125 at V item 17 on his tax return (or at V item 9 if he uses the tax return for retirees) and he would leave H blank.
Chapter B2 Worked examples for shares and units
The following examples show how CGT works in various situations where people have bought and sold shares and units. They may help you meet your CGT obligation and complete item 17 on your tax return, or item 9 if you use the tax return for retirees.
Example 1
- Sonya has a capital gain from one parcel of shares that she bought after 11. 45am (by legal time in the ACT) on 21 September 1999 and sold less than 12 months later.
In August 2001 Sonya bought 1,000 shares in Tulip Ltd for $1,500 including brokerage and sold them in July 2002 for $2,350. She paid $50 brokerage on the sale. The sale is a CGT event.
As Sonya bought and sold the shares within 12 months, she uses the 'other' method to calculate her capital gain as she cannot use the indexation or discount method. So her capital gain is:
$2,350 -($ 1,500 + $50) = $800.
As she has no other CGT event and does not have any capital losses, Sonya completes item 17 on her tax return (or item 9 if she uses the tax return for retirees) as follows:
17 Capital gains | You must also print X in the YES box at G if you received a distribution of a capital gain from a trust. | |
Did you have a capital gains tax event during the year? | G No Yes X | |
Net capital gain | A 800.00 | |
Total current year capital gains | H 800.00 | |
Net capital losses carried forward to later income years | V | |
Example 2
- Andrew has a capital gain from the sale of units which he bought before 11. 45am (by legal time in the ACT) on 21 September 1999 and gave to his brother more than 12 months later.
In May 1999 Andrew bought 1,200 units in Share Trust for $1,275 including brokerage. He gave the units to his brother in August 2002. At that time they were worth $1,595.
The gift is a CGT event. As Andrew bought the units before 21 September 1999 and he owned them for more than 12 months, he can use the indexation or discount method to calculate his capital gain, whichever gives him the better result.
Indexation method
If Andrew calculates his capital gain or capital loss using the indexation method, he indexes the cost of his units and the incidental costs of buying them as follows:
CPI for September 1999 quarter / CPI for June 1999 quarter
= 123.4 / 122.3
= 1.009
His indexed cost base is worked out as follows:
His cost ($ 1,275) X 1.009 | $1,286.48 |
- So his capital gain is:
Capital proceeds
$1,595.00
less Indexed cost base
$1,286.48
Equals capital gain
$308.52
Rounded down
$308.00
- Discount method
If Andrew uses the discount method, his capital gain is calculated as:
Capital proceeds
$1,595
less Cost base
$1,275
equals Total capital gain
$320
less discount*
$160
Capital gain
$160
- * Andrew does not have any capital losses. If he did he would deduct any capital losses before applying the discount.
Andrew chooses the discount method because it gives him a smaller capital gain.
As he has no other CGT event and does not have any capital losses, Andrew completes item 17 on his tax return as follows:
17 Capital gains
You must also print X in the YES box at G if you received a distribution of a capital gain from a trust.
Did you have a capital gains tax event during the year?
G No Yes X
Net capital gain
A 160.00
Total current year capital gains
H 320.00
Net capital losses carried forward to later income years
V
- Note
- If Andrew had received a non-assessable payment from the fund his cost base may have been reduced and the capital gain may have been greater. For more information, see chapter C2.
Example 3
- Fatima has a capital gain from one parcel of shares which she was given before 11.45am (by legal time in the ACT) on 21 September 1999 and sold more than 12 months later.
In October 1986 Fatima was given 500 shares in FJM Ltd with a market value of $2,500. She sold the shares in October 2002 for $4,500.
The sale is a CGT event. As Fatima acquired the shares before 21 September 1999 and owned them for more than 12 months, she can use the indexation or discount method to calculate her capital gain, whichever method gives her the better result.
Indexation method
If Fatima calculates her capital gain using the indexation method, the indexation factor is:
CPI for September 1999 quarter / CPI for December 1986 quarter
= 123.4 / 79.8
= 1.546
Her indexed cost base is:
Her cost ($ 2,500) 1.546 =
$3,865.00
- So her capital gain is calculated as follows:
Capital proceeds
$4,500.00
less Indexed cost base
$3,865.00
Capital gain
$635.00
- Discount method
If Fatima uses the discount method, her capital gain is calculated as:
Capital proceeds
$4,500
less Cost base
$2,500
Total capital gain
$2,000
less discount*
$1,000
Capital gain
$1,000
- * Fatima does not have any capital losses. If she did she would deduct any capital losses before applying the discount.
Fatima chooses the indexation method because it gives her a smaller capital gain.
As she has no other CGT event and does not have any capital losses, Fatima completes item 17 on her tax return (or item 9 if she uses the tax return for retirees) as follows:
17 Capital gains
You must also print X in the YES box at G if you received a distribution of a capital gain from a trust.
Did you have a capital gains tax event during the year?
G No Yes X
Net capital gain
A 635.00
Total current year capital gains
H 635.00
Net capital losses carried forward to later income years
V
Example 4
- Colin has a capital gain from some units he bought after 11.45am (by legal time in the ACT) on 21 September 1999 and redeemed less than 12 months later.
Colin bought 500 units in Equity Trust for $3,500 in October 2002 and redeemed them in June 2003 for $5,000 by switching or transferring his units from a share fund to a property fund. The redeeming of units is a CGT event.
As Colin acquired the units after 21 September 1999 and owned them for less than 12 months, he calculates his capital gain using the 'other' method. Colin's capital gain is:
Capital proceeds
$5,000
less
Cost base
$3,500
Capital gain
$1,500
- As he has no other CGT event and does not have any capital losses, Colin completes item 17 on his tax return as follows:
17 Capital gains
You must also print X in the YES box at G if you received a distribution of a capital gain from a trust.
Did you have a capital gains tax event during the year?
G No Yes
Net capital gain
A 1,500.00
Total current year capital gains
H 1,500.00
Net capital losses carried forward to later income years
V
- Note
- If Colin had received a non-assessable payment from the fund, his cost base may have been adjusted and the capital gain may have been greater. For more information, see chapter C2.
Example 5
- Mei-Ling made a capital gain from some shares she bought after 11.45am (by legal time in the ACT) on 21 September 1999 and sold more than 12 months later. She also has a net capital loss from an earlier income year.
Mei-Ling bought 400 shares in TKY Ltd for $15,000 in October 1999 and sold them for $23,000 in February 2003. The sale is a CGT event. She also has a net capital loss of $1,000 from an earlier income year that has not been applied against later year capital gains.
As she bought the shares after 21 September 1999, Mei-Ling cannot use the indexation method. However, as she owned the shares for more than 12 months and sold them after 21 September 1999, she can use the discount method. Her capital gain is:
Capital proceeds
$23,000
less Cost base
$15,000
Total capital gain
$8,000
less net capital loss
$1,000
Capital gain (before applying discount)
$7,000
less discount
- $3,500
Capital gain
- $3,500
- As she has no other CGT event, Mei-Ling completes item 17 on her tax return (or item 9 if she uses the tax return for retirees) as follows:
17 Capital gains
You must also print X in the YES box at G if you received a distribution of a capital gain from a trust.
Did you have a capital gains tax event during the year?
G No Yes X
Net capital gain
A 3,500.00
Total current year capital gains
H 8,000.00
Net capital losses carried forward to later income years
V
Example 6
- Mario made a capital loss from one parcel of shares he bought before 21 September 1999 and sold more than 12 months later.
In October 1986 Mario purchased 2,500 shares in Machinery Manufacturers Ltd for $2,650 including brokerage. He sold the shares in March 2003 for $2,300 and paid $50 brokerage. Mario also made a capital loss of $350 on some shares he sold in the 1999-2000 income year but had not made any capital gain since then that he could use to offset his capital losses.
The sale is a CGT event. Mario purchased the shares before 11.45am (by legal time in the ACT) on 21 September 1999 but he made a capital loss, so neither the indexation nor the discount method applies.
Mario calculates his capital loss for the current year as follows:
Reduced cost base ($2,650 + $50)
$2,700
less capital proceeds
$2,300
Capital loss
$400
- The capital losses that Mario can carry forward to reduce capital gains he may make in later income years are:
Capital loss for 2002-03
$400
plus capital loss for 1999-2000
$350
Net capital losses carried forward to later income year
$750
- As he has no other CGT event, Mario inserts '0' (zero) at A and completes item 17 on his tax return (or item 9 if he uses the tax return for retirees) as follows:
17 Capital gains
You must also print X in the YES box at G if you received a distribution of a capital gain from a trust.
Did you have a capital gains tax event during the year?
G No Yes X
Net capital gain
A 00.00
Total current year capital gains
H 00.00
Net capital losses carried forward to later income years
V 750.00
Chapter B3 Additional information for shares and units
This chapter covers less common situations for personal investors, including:
- share buy-backs
- takeovers and mergers
- dividend reinvestment plans, and
- bonus shares and bonus units.
Rights or options to acquire shares or units
If you hold shares or units, you may be issued rights or options to acquire additional shares or units at a specified price.
If the rights and options are offered at no cost, you are taken to have acquired them at the same time as you acquired the original shares or units. Therefore, if you acquired the original shares or units before 20 September 1985, any capital gain or capital loss you make from the sale of the rights or options is disregarded.
If you acquired your original shares or units (or rights or options from another entity) on or after 20 September 1985, they are treated much like any other CGT asset and are subject to CGT. This is also the case if you paid the company or fund an amount for them.
There are special rules that apply if you exercise the rights. For more information, or if you acquire rights or options under an employee share scheme, refer to the publication Guide to capital gains tax.
Non-assessable payments
There can be non-assessable payments in relation to both shares and units.
Non-assessable payments from a company to a shareholder
Non-assessable payments to shareholders are sometimes called a return of capital and are not very common (although companies such as Coca-Cola, BHP and Amcor have made non-assessable payments). If you received a payment from a company in respect of your shares and it was not a dividend, you deduct the amount of the payment from both the cost base and the reduced cost base of your shares.
If the non-assessable payment is greater than the cost base of your shares, you include the excess as a capital gain. If you use the indexation method to work out the amount of this capital gain you cannot use the discount method to work out a capital gain when you later sell the shares or units.
Non-assessable payments from a managed fund to a unit holder
The treatment of these payments is similar to non-assessable payments from a company to a shareholder. For more information, see chapter C2.
Non-assessable payments under a demerger
If the non-assessable payments are made by a company or a trust under a demerger, you may be entitled to CGT roll-over relief for a capital gain you make. You are required to make cost base adjustments under the demerger provisions irrespective of whether you choose roll-over. For more information, refer to the publication Guide to capital gains tax.
Share buy-backs
If you disposed of shares back to a company under a buy-back arrangement, you may have made a capital gain or capital loss.
Some of the buy-back price may have been treated as a dividend for tax purposes. The balance is treated as your capital proceeds for the share and you compare this amount with your cost base/ reduced cost base to work out whether you have made a capital gain or capital loss.
The time you make the capital gain or capital loss will depend on the conditions of the particular buy-back offer.
Takeovers and mergers
If a company in which you held shares was taken over and you received new shares in the takeover company, you may be entitled to scrip-for-scrip roll-over for any capital gain you made. This means you can defer your capital gain until a later CGT event happens to your shares. Usually, the takeover company would advise you if the scrip-for-scrip roll-over conditions were satisfied.
If you also received some cash from the takeover company you only get roll-over on the proportion of the original shares for which you received shares in the takeover company. You will need to apportion the cost base of the original shares between the replacement shares and the cash.
If the scrip-for-scrip conditions were not satisfied, your capital proceeds for your original shares will be the total of any cash and the market value of the new shares you received.
Scrip-for-scrip roll-over may also be available to the extent that units in a managed fund are exchanged for units in another managed fund.
Demergers
A demerger involves the restructuring of a corporate or trust group by splitting its operations into two or more entities or groups. Under a demerger the owners of the head entity of the group acquire a direct interest in an entity that was formerly part of the group.
If you owned interests in a company or fixed trust that is the head entity of a demerger group and you received new interests in the demerged company or trust, you may be entitled to demerger roll-over.
Generally the head entity undertaking the demerger will advise owners whether you are entitled to roll-over relief but you should seek our advice if you are in any doubt. The Australian Taxation Office (ATO) may have provided advice in the form of a class ruling on a specific demerger, confirming that roll-over is available.
Dividend reinvestment plans
Under these plans, shareholders can choose to use their dividend to acquire additional shares in the company instead of receiving a cash payment. For CGT purposes, you are treated as if you received a cash dividend and then used it to buy additional shares. Each share (or parcel of shares) received in this way is treated as a separate asset and you must make a separate calculation when you sell them.
Bonus shares and bonus units
Bonus shares are additional shares received by a shareholder in respect of shares already owned. These shares may be received by a shareholder wholly or partly as a dividend. The shareholder may also pay an amount to get them.
Bonus units may also be received in a similar way. The CGT rules for bonus shares and bonus units are also very similar. If you have sold bonus shares or bonus units, you may need to seek advice from the ATO to determine your CGT liability.
Dividends paid by listed investment companies (L I C ) that include L I C 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 (or item 9 if you use the tax return for retirees).
Example
- Ben, an Australian resident, was a shareholder in XYZ Ltd, a listed investment company. For the 2002-03 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:
Class C franked dividend (shown at T item 11 in TaxPack 2003)
$ 70,000
Imputation credit (shown at U item 11 in TaxPack 2003)
$ 30,000
Amount included in total income
$100,000
Less deduction for LIC capital gain (shown as deduction at item D7 in TaxPack 2003)
$25,000
Net amount included in income
$75,000
Note
- If Ben uses the tax return for retirees, he shows the amounts as follows: Class C franked dividend at T item 8; imputation credit at U item 8; deduction for LIC capital gain at item 12.
- Discount method
More information
For more information about the issues covered in this chapter, read the publications Guide to capital gains tax and You and your shares.
Part C: Distributions from managed funds
Chapter C1 How to work out your capital gains tax for a managed fund distribution
Note: new terms
Some terms in this section may be new to you. They have been printed in red the first time they are used (mostly in earlier sections) and are explained in Explanation of terms.
Reminder
If your managed fund distribution (as advised by the fund) includes a capital gain amount, you show this amount at item 17 Capital gains. You do not include capital gains at item 12-Partnerships and trusts.
Examples of managed funds include property trusts, share trusts, equity trusts, growth trusts, imputation trusts and balanced trusts.
Distributions from managed funds can include two types of amounts that affect your CGT obligation:
- capital gains, and
- non-assessable payments.
The following steps in chapter C1 show you how to record a capital gain distributed from a managed fund. Chapter C2 covers non-assessable amounts which mostly affect the cost base of units but can create a capital gain.
STEP 1 Work out the capital gain you have received from the managed fund
You need to know whether you have received any capital gain in your distribution-to find out, check the statement from your managed fund.
This statement should also show which method the fund has used to calculate the gain-the indexation, discount or 'other' method. You must use the same method(s) as the fund to calculate your capital gain. (These methods are explained in part A, part B and Explanation of terms at the back of this guide.)
Fund managers may use different terms to describe the calculation methods and other terms used in this guide. For example, they may refer to capital gains calculated using the indexation method and 'other method' as non-discount gains.
STEP 2 Gross up any discounted capital gain you have received
If the fund has applied the CGT discount to your distribution, this is known as a discounted capital gain.
You need to gross up any discounted capital gain distributed to you by multiplying the gain by two. This gross up amount is your capital gain from the fund. If the managed fund has shown the grossed-up amount of the discounted capital gain on your distribution statement, you can use that amount.
Example
- Tim received a distribution from a fund that included a discounted capital gain of $400. Tim's statement shows that the fund had used the discount method to calculate the gain.
- Tim grosses up the capital gain to $800 (that is, $400 x 2).
Note
- Generally a managed fund will not have qualified for the 50% small business CGT reduction. However if it did qualify for that concession (after you apply the CGT discount) multiply the gain by four.
STEP 3 Work out your total current year capital gains
Add up all the capital gains you received from funds (grossed up where necessary) together with any capital gains from other assets. Write the total of all of your capital gains for the current year at H item 17.
If you have any capital losses, do not deduct them from the capital gains before showing the total amount at H.
Example
- Tim's fund also distributed a capital gain of $100 calculated using the other method. Tim shows $900 ($ 800 + $100) at H item 17 on his tax return.
STEP 4 Applying capital losses against capital gains
If you have no capital losses from assets you disposed of this year and no net capital loss from an earlier year that you were able to carry forward to this year, go to step 5.
If you had capital losses (including net capital losses from earlier years) deduct them from your capital gains (the amount you wrote at H ). You may do this in the order that gives you the greatest benefit.
Offsetting your losses
You will probably get the greatest benefit if you deduct capital losses from capital gains distributed from the fund in the following order:
- capital gains calculated using the 'other' method
- capital gains calculated using the indexation method, and then
- capital gains calculated using the discount method.
If your capital losses (including net capital losses from earlier years) are greater than your capital gains, go to step 7.
Example
- If Tim had a loss of $200 when he sold another CGT asset, he deducts his capital loss ($ 200) from his capital gain ($ 900) and arrives at $700.
As he applied the loss first against the capital gain calculated using the 'other' method and then against the capital gain calculated using the discount method (after grossing it up), Tim can apply the CGT discount to the remaining $700.
Note
Losses from personal use assets and collectables
- Remember a net capital loss from collectables can only be used to reduce capital gains from collectables. Losses from personal use assets must be disregarded. Refer to the Guide to capital gains tax for more information.
STEP 5 Applying the CGT discount
If you have any remaining grossed up capital gains you can now apply the CGT discount-if applicable-and reduce them by 50%.
Remember, you cannot apply the CGT discount to capital gains distributed from the fund calculated using the indexation or 'other' method.
Example
- Tim has applied his capital losses (including net capital losses from earlier years) to his capital gain. He now reduces the amount remaining by 50%:
$700 X 50% = $350
Tim has a capital gain of $350.
STEP 6 Work out your net capital gain
Show at A item 17 the amount remaining after completing steps 1-5. This is your net capital gain for the year. Ignore step 7.
Example
- Tim shows $350 at A item 17 on his tax return.
STEP 7 Work out your carry-forward losses
If your capital losses (including net capital losses from earlier years) were greater than your capital gains, you were directed to this step from step 4.
If you have capital losses (including net capital losses from earlier years) remaining, you should show '0' (zero) at A.
At V show the amount by which your capital losses (including net capital losses from earlier years) are greater than your capital gains. You carry these capital losses forward to be applied against later year capital gains.
More information
For more information about CGT and managed fund distributions, get the publication Guide to capital gains tax.
Chapter C2 Non-assessable payments from a managed fund
Non-assessable payments from a managed fund to a unit holder are common and may be shown on your statement from the fund as:
- tax-free amounts (where certain tax concessions received by the fund mean it can pay greater distributions to its unit holders)
- CGT-concession amounts (the CGT discount component of any actual distribution)
- tax-exempted amounts (generally made up of exempt income of the fund, amounts on which the fund has already paid tax or income you had to repay to the fund), or
- tax-deferred amounts (other non-assessable amounts, including indexation received by the fund on its capital gains and accounting differences in income).
CGT-concession amounts received after 30 June 2001 and tax-exempted amounts do not affect your cost base or reduced cost base. However, if your statement shows any tax-deferred or tax-free amounts, you adjust the cost base and reduced cost base of your units for future purposes as follows:
- cost base-deduct the tax-deferred amount, or
- reduced cost base-deduct both the tax-deferred and tax-free amounts.
If the tax-deferred amount is greater than the cost base of your units, you include the excess as a capital gain. You can use the indexation method if you bought your units before 11.45am (by legal time in the ACT) on 21 September 1999.
A CGT-concession amount received before 1 July 2001 is taken off the cost base and reduced cost base.
Before 1 July 2001 payment of an amount associated with building allowances was treated as a tax-free amount. Payments after 1 July 2001 are treated as tax-deferred amounts.
Note
- You cannot make a capital loss from a non-assessable payment.
Chapter C3 Worked examples for managed fund distributions
The following worked examples take the steps explained in chapter C1 and put them into different scenarios to demonstrate how they work.
If you have received a distribution from a managed fund, you may be able to apply one or more of these examples to your circumstances to help you work out your CGT obligation for 2002-03 and complete item 17 on your tax return.
Example 1
- Bob has received a non-assessable amount. Bob owns units in OZ Investments Fund which distributed income to him for the year ending 30 June 2003. The fund gave him a statement showing his distribution included the following capital gains:
- $100 calculated using the discount method (grossed-up amount $200)
- $75 calculated using the indexation method, and
- $28 calculated using the 'other' method.
- These capital gains add up to $203. The statement shows Bob's distribution did not include a tax-free amount but it did include:
- $105 tax-deferred amount.
- From his records, Bob knows that the cost base and reduced cost base of his units are $1,200 and $1,050 respectively.
Bob has no other capital gains or capital losses for the 2002-03 income year.
Bob follows these steps to work out the amounts to show on his tax return. As Bob has a capital gain which the fund reduced by 50% under the CGT discount method ($100), he includes the grossed-up amount ($200) in his total current year capital gain.
To work out his total current year capital gains Bob adds the grossed-up amount to his capital gains calculated using the indexation method and 'other' method:
$200 + $75 + $28 = $303
As Bob has no other capital gains or capital losses and he must use the discount method in relation to the discount gain from the trust, his net capital gain is equal to the amount of capital gain included in his distribution from the fund ($203).
Bob completes item 17 on his tax return as follows:
17 Capital gains | You must also print X in the YES box at G if you received a distribution of a capital gain from a trust. | ||
Did you have a capital gains tax event during the year? | G No Yes X | ||
Net capital gain | A 203.00 | ||
Total current year capital gains | H 303.00 | ||
Net capital losses carried forward to later income years | V | ||
- Records Bob needs to keep
The tax-deferred amount Bob received is not included in his income or capital gains but it affects the cost base and reduced cost base of his units in OZ Investments Fund for future income years.
Bob deducts the tax-deferred amount from both the cost base and reduced cost base of his units as follows:
Cost base | $1,200 |
less tax-deferred amount | $105 |
New cost base | $1,095 |
Reduced cost base | $1,050 |
less tax-deferred amount | $105 |
New reduced cost base | $945 |
Example 2
- Ilena's capital loss is greater than her capital gains calculated under the indexation method and 'other' method.
Ilena invested in XYZ Managed Fund. The fund makes a distribution to Ilena for the year ending 30 June 2003 and provides her with a statement that shows her distribution included:
- $65 discounted capital gain
- $50 capital gain calculated using the 'other' method, and
- $40 capital gain calculated using the indexation method.
- The statement shows Ilena's distribution also included:
- $30 tax-deferred amount, and
- $35 tax-free amount.
- Ilena has no other capital gain but made a capital loss of $100 when she sold some shares during the year.
From her records, Ilena knows the cost base of her units is $5,000 and their reduced cost base is $4,700.
Ilena has to treat the capital gain component of her fund distribution as if she made the capital gain. To complete her tax return, Ilena must identify the capital gain component of her fund distribution and work out her net capital gain.
Ilena follows these steps to work out the amounts to show at item 17 on her tax return.
As Ilena has a $65 capital gain which the fund reduced by the CGT discount of 50%, she must gross up the capital gain. She does this by multiplying the amount of the discounted capital gain by two:
$65 X 2 = $130
To work out her total current year capital gains Ilena adds her grossed-up capital gain to her capital gains calculated under the indexation method and 'other' method :
$130 + $50 +$ 40 = $220
She shows her total current year capital gains ($ 220) at H item 17 on her tax return, or at H item 9 if she uses the tax return for retirees.
Now Ilena subtracts her capital losses from her capital gains. Ilena can choose which capital gains she subtracts her capital losses from first. In her case, she will receive a better result if she:
1. subtracts as much as possible of her capital losses (which were $100) against her indexed and 'other' method capital gains. Her gains under these methods were $40 and $50 respectively, a total of $90, so she subtracts $90 of her capital losses against these capital gains.
$90 -$90 = $0 (indexed and 'other' method capital gains)
2. subtracts her remaining capital losses after step 1 ($ 10) against her discounted capital gains ($ 130).
$130 -$10 = $120 (discounted capital gains)
3. applies the CGT discount to her remaining discounted capital gains: ($ 120 50%) = $60 (discounted capital gains)
Reminder
- A CGT-concession amount is only taken off the cost base or reduced cost base if it was received BEFORE 1 July 2001.
Finally, Ilena adds up the capital gains remaining to arrive at her net capital gain:
$0 (indexed and 'other') + $60 (discounted) = $60 net capital gain
Ilena completes item 17 on her tax return as follows:
17 Capital gains | You must also print X in the YES box at G if you received a distribution of a capital gain from a trust. | ||
Did you have a capital gains tax event during the year? | G No Yes X | ||
Net capital gain | A 60.00 | ||
Total current year capital gains | H 220.00 | ||
Net capital losses carried forward to later income years | V 0.00 | ||
- Records Ilena needs to keep
The tax-deferred and tax-free amounts Ilena received are not included in her income or her capital gain but the tax-deferred amount affects the cost base and reduced cost base of her units in XYZ Managed Fund for future income years. The tax-free amount affects her reduced cost base.
Ilena reduces the cost base and reduced cost base of her units as follows:
Cost base | $5,000 |
less tax-deferred amount | $30 |
New cost base | $4,970 |
Reduced cost base | $4,700 |
less (tax-deferred amount + tax-free amount) ($ 30 + $35) | $65 |
New reduced cost base | $4,635 |
Appendixes
Appendix 1 Recent share transactions
Company | Details of transaction |
AMP Ltd | Demutualisation Acquisition cost for AMP Ltd shares was $10.43 per share and acquisition date was 20 November 1997. |
BHP Billiton Limited | Demerger In July 2002 BHP shareholders received one BHP Steel Ltd share for every five BHP Billiton shares held. BHP Billiton has advised that BHP Steel represented 5.063% of the market value of the group as a whole just after the demerger. Shareholders who received BHP Steel shares should use this percentage to apportion the sum of the cost bases of their post-CGT BHP Billiton shares between these shares and the post-CGT BHP Steel shares. |
Commonwealth Bank of Australia Ltd | Public share offer For the first instalment: Acquisition date was (and indexation available from) 13 July 1996. For the final instalment: Indexation also applied from 13 July 1996. |
CSR Limited-Rinker Group Limited | Demerger In April 2003 CSR shareholders received one Rinker share for every CSR share they held. CSR has advised that Rinker represented 75% of the market value of the group as a whole just after the demerger. Shareholders who received Rinker shares should use this percentage to apportion the sum of the cost bases of their post-CGT CSR shares between these shares and the post-CGT Rinker shares. |
Harris Scarfe Holdings Ltd | Statement was not a declaration that shares are worthless. On 26 June 2002 the liquidators of Harris Scarfe Holdings Ltd advised shareholders they were unable to determine the amount of any return to shareholders in the winding up of the company. The liquidators have also advised that it may be some considerable time before all issues are resolved in the courts. Shareholders of Harris Scarfe cannot choose to make a capital loss until such time as the liquidators may make a declaration that satisfies CGT event G3. |
HIH Insurance Ltd | Declaration shares worthless Liquidators' written declaration made on 10 October 2001 enabled shareholders of HIH Insurance Limited to choose to make a capital loss in 2001-02 equal to the reduced cost base of the share under CGT event G3. |
Insurance Australia Group (IAG) Limited | Share purchase plan Offers opened on 4 November 2002 for shareholders to purchase shares from IAG for $2.40 per share free of brokerage and transaction costs. There are no CGT consequences at the time of purchase. However, there are taxation consequences in relation to owning and disposing of the shares you purchase. |
NRMA Insurance Group Ltd (NIGL) | Demutualisation Acquisition cost of NIGL shares allocated to shareholders was $1.78 per share. Acquisition date was 19 June 2000. For additional shares purchased through the facility, acquisition cost was $2.75 and acquisition date was 6 August 2000. |
One. Tel Ltd | Declaration shares worthless Liquidators' written declaration made on 30 May 2002 enabled shareholders of One. Tel Ltd to choose to make a capital loss in the 2001-02 year equal to the reduced cost base of the share under CGT event G3. |
Pasminco Limited | Statement that shares are worthless not made by liquidator The statement by the administrators on 4 September 2002 did not cause a CGT event G3 (liquidator declares shares worthless) to happen. Shareholders of Pasminco cannot choose to make a capital loss until such time as a liquidator may make a declaration that satisfies CGT event G3. See Class Ruling CR 2002/ 85 - Income tax: capital gains tax: CGT event G3: Pasminco Limited (subject to deed of company arrangement). |
Sonic Health Care Limited - SciGen Limited | Demerger In December 2002 Sonic shareholders received one SciGen share in the form of a CHESS Unit of Foreign Security (CUFS) for every Sonic share held. Sonic has advised that SciGen represented 0.66% of the market value of the group as a whole just after the demerger. Shareholders who received SciGen shares should use this percentage to apportion the sum of the cost bases of their post-CGT Sonic shares between these shares and the post-CGT SciGen shares. See Class Ruling CR 2002/ 89 - Income Tax: dividend, capital reduction and related schemes of arrangement for the demerger of SciGen Limited from Sonic Healthcare Limited. |
TAB Limited | Share buy-back On 21 March 2002 TAB Limited announced a share buy-back. The capital proceeds received were $2.35. The amount by which the capital proceeds of $2.35 exceeds the cost base of each share will be a capital gain to the shareholder. If the share's reduced cost base exceeds $2.35, the difference will be a capital loss. The announcement date was 21 March 2002. See Class Ruling CR 2002/16 - Income tax: share buy-back: TAB Limited. |
Telstra | Public share offer 1 For the first instalment: Acquisition of shares was on (and indexation available from) 15 November 1997. For the final instalment: Indexation applied from 15 November 1997. Public share offer 2 For the first instalment: Date of acquisition was 22 October 1999 if the instalment receipts were purchased through the offer. No indexation applied because acquisition was after 11.45am (by legal time in the ACT) on 21 September 1999. For the final instalment: Similarly, no indexation applied. |
Western Mining Corporation Limited - WMC Resources Limited | Demerger In December 2002 WMC shareholders received one WMCR share for every WMC share held. Also WMC Limited changed its name to Alumina Ltd. Alumina has advised that WMCR represented 46.30% of the market value of the group as a whole just after the demerger. Shareholders who received WMCR shares should use this percentage to apportion the sum of the cost bases of their post-CGT Alumina shares between these shares and the post-CGT WMCR shares. |
Appendix 2 Consumer price index (CPI)
All groups - weighted average of eight capital cities
Year | Quarter ending | |||
31 Mar. | 30 Jun.. | 30 Sep. | 31 Dec | |
1985 | 71.3 | 72.7 | ||
1986 | 74.4 | 75.6 | 77.6 | 79.8 |
1987 | 81.4 | 82. | 6 84.0 | 85.5 |
1988 | 87.0 | 88.5 | 90.2 | 92.0 |
1989 | 92.9 | 95.2 | 97.4 | 99.2 |
1990 | 100.9 | 102.5 | 03.3 | 106.0 |
1991 | 105.8 | 106.0 | 106.6 | 107.6 |
1992 | 107.6 | 107.3 | 107.4 | 107.9 |
1993 | 108.9 | 109.3 | 109.8 | 110.0 |
1994 | 110.4 | 111.2 | 111.9 | 112.8 |
1995 | 114.7 | 116.2 | 117.6 | 118.5 |
1996 | 119.0 | 119.8 | 120.1 | 120.3 |
1997 | 120.5 | 120.2 | 119.7 | 120.0 |
1998 | 120.3 | 121.0 | 121.3 | 121.9 |
1999 | 121.8 | 122.3 | 123.4 | N/ A* |
More information
Explanation of terms
The page number refers to the paper version of this document and indicates the first time each term is used
You may make a capital gain from a CGT event such as the sale of an asset. Generally your capital gain is the difference between your asset's cost base (what you paid for it) and your capital proceeds (what you received for it). You can also make a capital gain if a managed fund or other unit trust distributes a capital gain to you.
Capital gains tax (CGT) refers to the income tax you pay on any net capital gain you make and include on your annual income tax return. For example, when you sell (or otherwise dispose of) an asset as part of a CGT event, you are subject to CGT.
Generally, you may make a capital loss as a result of a CGT event if you received less capital proceeds for an asset than its reduced cost base (what you paid for it). Your capital loss is your reduced cost base less your capital proceeds.
Capital proceeds is the term used to describe the amount of money or the value of any property you receive or are entitled to receive as a result of a CGT event. For shares or units, capital proceeds may be:
- the amount you receive from the purchaser
- the value of shares (or units) you receive on a demerger
- the value of shares (or units) and the amount of cash you receive on a merger/ takeover, or
- the market value if you give them away.
The CGT assets covered by this guide are shares and units.
However, CGT assets also include collectables (such as jewellery), assets for personal use (such as furniture or a boat) and other assets (such as an investment property). If you have made a capital gain from the sale of one or more of these assets, you may need to read the publication Guide to capital gains tax.
These amounts are the CGT discount component of any actual distribution from a managed fund.
A CGT event happens when a transaction takes place such as the sale of a CGT asset. The result is usually a capital gain or capital loss.
The cost base of an asset is generally what it costs you. It is made up of five elements:
- money you paid or property you gave for the asset
- certain incidental costs of acquiring or selling it - brokerage, stamp duty, investment consultants fees and legal fees
- non-capital costs associated with owning it (generally this will not apply to shares or units because you will usually have claimed these costs as tax deductions)
- costs associated with increasing its value (for example, if you paid a call on shares), and
- what it has cost you to establish, preserve or defend your ownership or rights to it.
The cost base for a share or unit may need to be reduced by the amount of any non-assessable payment you receive from the company or fund.
This generally applies to CGT events that happen on or after 1 July 2002 to interests that you own in the head entity of a demerger group and a company or trust is demerged from the group. Generally the head entity undertaking the demerger will advise owners whether demerger roll-over is available but you should seek our advice if you are in any doubt. The ATO may have provided advice in the form of a class ruling on a specific demerger, confirming that the roll-over is available.
This roll-over allows you to defer your CGT obligation until a later CGT event happens to your original or your new shares or units.
A company demutualises when it changes its membership interests to shares. If you received shares as part of a demutualisation of an Australian insurance company (for example, the NRMA), you are not subject to CGT until you sell the shares.
Usually the company will advise you of your cost base for the shares you received. The company may give you the choice of keeping the shares they have given you or of selling them and giving you the capital proceeds.
If you hold a policy in an overseas insurance company that demutualises, you may be subject to CGT at the time of the demutualisation.
The discount method is one of the ways to calculate your capital gain if:
- the CGT event happened after 11.45am (by legal time in the ACT) on
- 21 September 1999 and
- you acquired the asset at least 12 months before the CGT event.
If you use the discount method, you do not index the cost base but you can reduce your capital gain by the CGT discount of 50%. However, you must first reduce your capital gains by the amount of all your available capital losses (both current year and prior years) before you discount any remaining capital gain.
If you acquired the asset before 11.45am (by legal time in the ACT) on 21 September 1999, you can choose either the discount method or the indexation method, whichever gives you the better result.
The examples in part B of this guide show you how the discount method works.
A discounted capital gain is a capital gain that has been reduced by the CGT discount. If the discounted capital gain has been received from a managed fund, the amount will need to be grossed up before you apply any capital losses and the CGT discount.
Dividend reinvestment plans p. 15
Under these plans, shareholders can choose to use their dividend to acquire additional shares in the company instead of receiving a cash payment. For CGT purposes, you are treated as if you received a cash dividend and then used it to buy additional shares. Each share (or parcel of shares) received in this way is treated as a separate asset when the shares are issued to you.
Grossing up applies to unit holders who are entitled to a share of the fund's income that includes a capital gain reduced by the CGT discount. In this case, you 'gross up' your capital gain by multiplying by two your share of any discounted capital gain you have received from the fund.
The income year is the financial year relating to your current income tax return.
The indexation factor is worked out based on the Consumer Price Index (CPI) in appendix 2 of this guide.
The indexation of the cost base of an asset is frozen as at 30 September 1999. For CGT events after that time the indexation factor is the CPI for the September 1999 quarter (123.4) divided by the CPI for the quarter in which you incurred costs relating to the asset. The result is rounded to three decimal places. You may have different indexation factors for different amounts included in your cost base.
The indexation method is one of the ways to calculate your capital gain if you bought a CGT asset before 11.45am (by legal time in the ACT) on 21 September 1999. This method allows you to increase the cost base by applying an indexation factor to each item of expenditure in your cost base (based on increases in the Consumer Price Index up to September 1999).
Some examples in part B of this guide show you how the indexation method works. You may prefer to use the discount method for CGT events after 21 September 1999 if that method gives you better result.
This is an amount notionally included in a dividend from a listed investment company (LIC) which represents a capital gain made by that company. The amount is not included as a capital gain under item 17 on the tax return, or item 9 if you use the tax return for retirees. (Refer to instructions for Dividend income at item 11 on the tax return or item 8 if you use the tax return for retirees.)
A net capital gain is the difference between your total capital gains for the year and your total capital losses (including capital losses from prior years), less any CGT discount to which you are entitled.
You show the result at A item 17 on your tax return, or item 9 if you use the tax return for retirees.
A non-assessable payment is a payment received from a company or fund that is not assessed as part of your income on your income tax return. This includes some distributions from unit trusts and managed funds and, less commonly, from companies.
To calculate your capital gain using the 'other' method, you subtract your cost base from your capital proceeds. You must use this method for any shares or units you have bought and sold within 12 months (that is, when the indexation and discount methods do not apply).
The reduced cost base is the amount you take into account when you are working out whether you have made a capital loss when a CGT event happens. The reduced cost base may need to have amounts deducted from it such as non-assessable payments. The reduced cost base does not include indexation or non-capital costs of ownership such as interest on monies borrowed to buy the asset.
Roll-over allows a capital gain to be deferred or disregarded until a later CGT event happens.
Scrip-for-scrip roll-over p. 3
This can apply to CGT events that happen on or after 10 December 1999 in the case of a takeover or merger of a company or fund in which you have holdings. The company or fund would usually advise you if the roll-over conditions have been satisfied. This roll-over allows you to defer your CGT obligation until a later CGT event happens to your shares or units.
You may only be eligible for partial roll-over if you received shares (or units) plus cash for your original shares. In that case, if the information provided by the company or fund is not sufficient for you to calculate your capital gain, you may need to seek advice from the ATO.
If you disposed of shares back to a company under a buy-back arrangement, you may have made a capital gain or capital loss.
Some of the buy-back price may have been treated as a dividend for tax purposes. The time you make the capital gain or capital loss will depend on the conditions of the particular buy-back offer.
If a company in which you held shares was taken over and you received new shares in the takeover company, you may be entitled to scrip-for-scrip roll-over.
If the scrip-for-scrip conditions were not satisfied, your capital proceeds for your original shares will be the total of any cash and the market value of the new shares you received.
These amounts include indexation received by a managed fund on its capital gains and accounting differences in income.
These amounts are generally made up of exempt income of the managed fund - such as amounts on which the fund has already paid tax or income you had to repay to the fund. Tax-exempted amounts do not affect your cost base or your reduced cost base.
These amounts allow the managed fund to pay a greater distribution to its unit holders. This is due to certain tax concessions funds can receive.
Further information
This guide only covers basic capital gains tax issues relating to shares and managed funds for personal investors and is not designed to cover all circumstances.
For the ATO's most up-to-date and comprehensive information about capital gains tax, visit our website at www.ato.gov.au
You may also find the following publications useful:
- Guide to capital gains tax (NAT 4151 - 6.2003)
- Guide to capital gains tax concessions for small business (NAT 8384 - 5.2003), and You and your shares (NAT 2632-6.2003)
All ATO publications are free. They are available by phoning 1300 720 092. If you need further information:
- request A Fax from Tax on 13 28 60
- phone the ATO on 13 28 61, or
- seek advice from a professional tax adviser.
How self-assessment affects most individuals
Self-assessment means the Australian Taxation Office (ATO) uses the information you give on your tax return to work out your refund or tax bill. You are required by law to make sure you have shown all your assessable income and claimed only the deductions and tax offsets to which you are entitled.
What are your responsibilities? Even if someone else - including a tax agent - helps you to prepare your tax return, you are still legally responsible for the accuracy of your information.
What if you lodge an incorrect tax return? Our audit programs are designed to continually check for missing, inaccurate or incomplete information. If you become aware that your tax return is incorrect, you must contact us straight away.
Initiatives to complement self-assessment
There are a number of initiatives administered by the ATO which complement self-assessment. Examples include:
- if you take reasonable care with your tax affairs, you will not receive a penalty for honest mistakes - but please note that a general interest charge on omitted income or over-claimed deductions and tax offsets could still be payable
- the process for applying for private rulings
- your entitlement to interest on early payment or over-payment of a tax debt, or
- the process for applying for an amendment if you find you have left something out of your tax return.
Do you need to ask for a private ruling?
If you have a concern about the way a tax law applies to your personal tax affairs, you may want to ask for a private ruling.
A private ruling will relate just to your situation. Write to the ATO describing your situation in detail and ask for advice. To do this, complete an Application for a private ruling for individuals (NAT 4106 - 3.2001). You should lodge your tax return by the due date, even if you are waiting for the reply to your private ruling. You may need to request an amendment to your tax return once you have received the private ruling.
The ATO publishes on its website all private rulings issued. What we publish will not contain anything which could identify you.
You can ask for a review of a private ruling decision if you disagree with it, even if you have not received your assessment. Details of the review procedures are sent to you when the private ruling decision is made.
For more information on private rulings, visit the ATO website at www.ato.gov.au
Feedback
Reader feedback helps us to improve the information we provide. If you have any comments to make about this publication, please write to:
The Editor
Personal Tax Publishing Group
Australian Taxation Office
PO Box 900
CIVIC SQUARE ACT 2608
As this is a publications area only, any tax matters will be passed on to a technical area; alternatively you can phone our Personal Tax Infoline on 13 28 61 for help.
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People with a hearing or speech impairment can phone the Telephone Typewriter Service on 1300 130 478.
ATO references:
NO NAT 4152
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