Personal investors guide to capital gains tax 2004

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
• capital gains from 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 your net capital gain which is 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 net 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.

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 8.

If you have capital losses (including net capital losses from earlier years) remaining, do not put anything 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 (including net capital losses from earlier years) 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 not put anything 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.

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 2002 Sonya bought 1,000 shares in Tulip Ltd for $1,500 including brokerage and sold them in July 2003 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:

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 2003. 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:

• His indexed cost base is worked out as follows:
• His cost ($1,275) X 1.009
• = $1,286.48
• So his capital gain is:

Discount method

If Andrew uses the discount method, his capital gain is calculated as:

• * 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:

• 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 2003 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:

• Her indexed cost base is:
• Her cost: ($2,500) X 1.546 = $3,865.00
• So her capital gain is calculated as follows:

• Discount method
• If Fatima uses the discount method, her capital gain is calculated as:

• * 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:

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 2003 and redeemed them in June 2004 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 owned the units for less than 12 months, he calculates his capital gain using the 'other' method. Colin's capital gain is:

• As he has no other CGT event and does not have any capital losses, Colin completes item 17 on his tax return as follows:

• 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 2004. 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:

• 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:

Example 6

• Mario made a capital loss from one parcel of shares he bought before 11.45am (by legal time in the ACT) on 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 2004 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 Machinery Manufacturers Ltd 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:

• The capital losses that Mario can carry forward to reduce capital gains he may make in later income years are:

• 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:

This chapter briefly explains less common situations for personal investors, including:

• rights or options
• non-assessable payments
• share buy-backs
• takeovers and mergers
• demergers
• dividend reinvestment plans
• bonus shares and bonus units, and
• dividends paid by listed investment companies (LIC) that include a LIC capital gain.

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.

Rights and options issued directly to you from a company or trust for no cost

You are taken to have acquired the rights and options at the same time 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 when the rights or options expire or are sold is disregarded as they are pre-CGT assets.

If you acquired the original shares or units on or after 20 September 1985, you make a capital gain if the capital proceeds on the sale or expiry of the rights or options are more than their cost base. You make a capital loss if the reduced cost base of the rights or options is more than those capital proceeds.

Rights and options you paid to acquire from a company or trust or you acquired from another person

If you acquired your rights or options on or after 20 September 1985, they are treated much like any other CGT asset and are subject to CGT.

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, see 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 you receive a non-assessable payment under an eligible demerger, you do not deduct the payment from the cost base and reduced cost base of your shares or units. Instead, you make adjustments to your cost base and reduced cost base under the demerger rules. You may make a capital gain in respect of the non-assessable payment if it exceeds the cost base of your original share or unit, although you will be able to choose rollover.

An eligible demerger is one that happens on or after 1 July 2002 and satisfies certain tests. The head entity will normally advise shareholders or unitholders if this is the case.

For more information, see the 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 and 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 rollover 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 rollover conditions were satisfied.

If you also received some cash from the takeover company you only get rollover 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 rollover may also be available to the extent that units in a managed fund are exchanged for units in another managed fund.

For more information about takeovers and mergers, see the Guide to capital gains tax .

A demerger involves the restructuring of a corporate or fixed 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 (that is, the shareholders of the company or unit holders of the trust) acquire a direct interest (shares or units) 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 rollover .

Generally the head entity undertaking the demerger will advise whether you are entitled to rollover but you should seek our advice if you are in any doubt. The Tax Office may have provided advice in the form of a class ruling on a specific demerger, confirming that rollover is available.

Even if you do not choose rollover, you must recalculate the cost base and reduced cost base of each of your original interests in the head entity and your new interests in the demerged entity.