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Edited version of your written advice
Authorisation Number: 1012979398657
Date of advice: 2 March 2016
Ruling
Subject: Capital gains tax - cost base
Question 1
Can the trustees decide which parcel of shares they want to dispose of, if they have relevant records to identity those parcel of shares?
Answer
Yes.
Question 2
Can the trustees utilise the average cost method to dispose of the shares?
Answer
No.
This ruling applies for the following periods:
Year ending 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
You currently own the following shares:
• A parcel of company A shares purchased in the 20XX-YY financial year with a specific cost base.
• A parcel of company A shares purchased in 20VV-WW financial year with a specific cost base.
You intend to sell a parcel of company A shares.
You are able identify the parcel of shares you intend to dispose of.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10.
Reasons for decision
Question 1
Detailed reasoning
Taxation Determination TD 33 explains that where a disposal of shares occurs and those shares are able to be individually distinguished, for example, by reference to share numbers or other distinctive rights or obligations attached to them, those shares are identifiable; their date of acquisition and cost base will be a matter of fact.
Taxation Ruling TR 96/4 also explains where shares cannot be identified by reference to either individual numbers or share certificates, but a taxpayer maintains appropriate accounting records, of the acquisition and disposal of shares, that will be regarded as sufficient to specifically identify shares to determine their value for taxation purposes. A taxpayer then is able to identify which shares are being appropriated to a particular sale transaction.
As you have adequate accounting records to determine that you purchased a parcel of company A shares in the 20VV-WW financial year, with a specific cost base, these shares are identifiable. Therefore as you intend to sell a parcel of company A shares, you are able to select the more favourable parcel of shares mentioned above and dispose of them, because you are able to identify them.
Question 2
Detailed reasoning
TD 33 states that the average cost method generally is acceptable only where it is not practicable to ascertain the actual cost of the shares. As the shares are able to be identified the average cost method would not be acceptable under these circumstances.
Furthermore, TD 33 also states where unidentifiable shares have been disposed of the Commissioner has accepted the first in, first out method as a reasonable basis of identification.