Personal investors guide to capital gains tax 2002

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. Generally, a CGT event has happened if you have sold (or otherwise disposed of) a CGT asset during 2001-02. Other examples of CGT events 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.

For the purposes of this guide, CGT assets include shares and units in a unit trust (including a managed fund).

If a managed fund makes a capital gain and distributes income to you, you are treated as if you made a capital gain from a CGT event.

If a listed investment company (LIC) pays a dividend to you that includes a LIC capital gain amount , you are not treated as if you made a capital gain from a CGT event. You should refer to the publication You and your shares if you have received such an amount as you may be entitled to a deduction.

If you did not have a CGT event, print X in the NO box at G item 17 on your tax return. If you had a CGT event, print X in the YES box and read on.

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 3 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 'other' method applies when the indexation and discount methods do not apply.

The indexation method allows you to increase the value of what 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.

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 per cent.

Generally, if you have held your shares or units for 12 months or more, you can choose either the discount method or the indexation method to calculate your capital gain, whichever gives you the better result.

However, you cannot use the indexation method for any assets you acquired after 21 September 1999. 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 .

If you sold your asset for less than you paid for it, you have made a capital loss. This happens when your reduced cost base is greater than your capital proceeds. The excess is the amount of your capital loss.

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 3 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 up to September 1999

Allows you to halve your capital gain

Basic method of subtracting the cost base from the capital proceeds

When to use each method

Use for shares or units held for 12 months or more, if it produces a better result than the discount method. Use only with assets acquired before 21 September 1999.

Use for shares or units held for 12 months or more, if it 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 each method

Apply the relevant indexation factor (see CPI table in appendix 1 ), 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 2 (see worked examples in chapter B2 ).

Subtract the cost base from the capital proceeds (see chapter B1 ).