Personal investors guide to capital gains tax 2001

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About this guide

Warning: This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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Note: What this guide is designed to do

This guide is designed for personal investors who have made a capital gain or capital loss in 2000 - 01 from shares, units or managed funds. It will help you complete item 17 (capital gains) in your 2001 tax return for individuals (supplementary section).

If you sold shares or units in a unit trust (including a managed fund) in 2000 - 01, 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 2000 - 01, 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.

Note: What this guide is not designed to do

This guide does not cover your capital gains tax obligations when you sell:

• a rental property
• collectables (for example, jewellery, art, antiques and collections), or
• assets for personal use (for example, a boat you use for recreation).

It also does not cover more complex issues relating to shares and units. All of these issues are covered in the Guide to capital gains tax 2001, designed for more complex individual situations and for companies, trusts and superannuation funds.

Handy Hint

We may have used some terms that are not familiar to you. The first time these words are used they are linked to their explanation under the heading Explanation of terms.

Note: Small business concessions

If you are involved in the sale of shares or units in relation to a small business, you may wish to obtain a copy of the publication Capital gains tax concessions for small business.

If you feel this guide does not fully cover your circumstances, please:

• visit our website at www.ato.gov.au
• obtain a copy of the Guide to capital gains tax 2001 or You and your shares.
• contact the Australian Taxation Office (ATO), or
• seek advice from a professional tax adviser.

Part A: How capital gains tax applies to you

What is capital gains tax?

Capital gains tax (CGT) refers to the tax you pay on any capital gain you make (for example, from the sale of an asset) that you include in your annual income tax return.

When you sell an asset, this transaction is known as a CGT event. You can only make a capital gain or capital loss if a CGT event happens or you receive a distribution of a capital gain. You show the total of your current year capital gains at label H item 17 in your 2001 tax return for individuals (supplementary section).

Note: new terms

We may have used some terms that are not familiar to you. The first time these words are used they are linked to their explanation under the heading 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). 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.

Note: world - wide obligations

Australian residents make a capital gain or capital loss if a CGT event happens to any of their assets anywhere in the world.

Capital gains tax affects your income tax if you have made a net capital gain in your current income year. Your 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 your net capital gain at label A item 17.

Handy Hint

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 the CGT event happens. You must keep these records for five years after the CGT event has happened.

How to meet your capital gains tax obligations

To work out whether you have a capital gains tax obligation, 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 capital gains tax. Generally, a CGT event has happened if you have sold (or otherwise disposed of) a CGT asset during 2000 - 01. 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).

Also, 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 you received shares as part of a demutualisation of an insurance company (for example, the NRMA), you may be subject to capital gains tax when you sell the shares.

If you did not have a CGT event, print X in the NO box at label G item 17. 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.

Generally, any capital gain or capital loss you make in relation to a CGT event is disregarded if you acquired the asset before 20 September 1985.

Step 3 - Calculate your capital gain or capital loss

The most common form of capital gain for individuals results from the sale of shares or units, or from a distribution from a managed fund.

There are three ways of calculating your capital gain: 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%.

Generally, if you 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 best 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 of 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.

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 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. Only for use with assets acquired before 21/9/99	Use for shares or units held for 12 months or more, if it produces a better result than the indexation method	Use if you have bought and sold your shares or units 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)

If you have sold some shares or units in a unit trust (including a managed fund) this income year, go to part B of this guide to find out how to calculate and report your capital gains tax obligation.

If you have a capital gain from a managed fund, the statement you receive from the fund should give you the amounts you need.

If you have received a distribution of a capital gain from a managed fund this income year, go to part C of this guide to find out how to report your capital gains tax obligation.

Exceptions, exemptions, discounts or other concessions

There may be exceptions, exemptions, discounts, roll-over or other concessions that allow you to reduce, defer or disregard your capital gain or capital loss. For example, generally you can disregard any capital gain or capital loss associated with any pre-CGT assets you acquired before 20 September 1985.

For example, if a company in which you hold shares is taken over or merges with another company, you may have a capital gains tax obligation if you are required to dispose of your existing shares. If this happened this income year, you may be able to defer or roll over your CGT obligation until a later CGT event happens. This is known as scrip for scrip roll-over and it does not apply if you make a capital loss.

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 capital gains tax on the transfer, but capital gains tax may need to be paid when a later CGT event happens to the asset (for example, if your former spouse disposes of the asset).

Where to now?

Please go to the parts of this guide that apply to you:

• part B for the sale of shares or units, and/or
• part C for distributions of a capital gain from a managed fund.

Note:

If you have sold a rental property, have assets from a deceased estate, or had several CGT events this income year, this guide does not provide you with enough detail. You need to obtain a copy of the Guide to capital gains tax 2001 to find out how to calculate and report your capital gains tax obligation.

Part B: Sale of shares or units

Chapter B1: How to work out your capital gain or capital loss

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:

1. work out how much you have received from each CGT event (your capital proceeds)
2. work out how much each CGT asset cost you (the cost base), and
3. 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. There are three ways of calculating a capital gain. These are:

• the indexation method
• the discount method, and
• the 'other' method if you bought and sold your asset within 12 months (this is the basic method explained in the three steps above).

For a more detailed description of these methods, see part A or the Explanation of terms.

Note: New terms

Some terms in this section may be new to you. The first time these words are used they are linked to their explanation under the heading Explanation of terms.

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). 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). All of these transactions are CGT events.

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 will be 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 you need to make to work out your capital gains tax obligation using the 'other' and the discount methods. If you want to use the indexation method (by indexing your cost base for CPI) you will need to do this at step 2. You may find the worked examples in chapter B2 easier to follow.

Step 1 - Work out your capital proceeds from the CGT event

The capital proceeds are what you receive, or are deemed to receive, when you sell or otherwise dispose of your CGT asset.

For example, with shares the capital proceeds may be:

• the amount you receive from the purchaser
• the amount you receive from a liquidator
• the amount you receive on a merger/takeover, or
• the market value if you give shares away.

Example

Fred sold his parcel of 1000 shares for $6000. Fred's capital proceeds are $6000.

Step 2 - Work out the cost base of your asset

The cost base of your asset is what your asset cost you, including the incidental costs of buying, selling, maintaining and preserving it.

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 receive from the company or fund. This is explained below.

Interest you have paid on money borrowed to buy shares or units will not form part of your cost base if you have claimed a deduction in any income year.

For shares, the cost base is usually the cost of buying the shares, including brokerage and stamp duty.

Example

Fred had bought his 1000 shares at $5 each ($5000).He was charged $50 for brokerage and paid duties of $25.

The cost base of his shares is $5000+$50+$25 =$5075.

Note:

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 have a look at the worked examples in chapter B2.

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 $6000, he subtracts the $5075 from the $6000 to arrive at $925.

Fred made a capital gain of $925.

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 deduct from the cost base. Interest on borrowings and indexation are not included.

Example

In our example, Fred's cost base and reduced cost base for his shares are the same.

Note: Reduced cost base

For shares, generally the cost base and reduced cost base will be the same.

For units, the cost base and reduced cost base will need to be adjusted for tax-deferred amounts and CGT-concession amounts received before 1 July 2001. Only the reduced cost base will need to be further adjusted for a tax-free amount. A tax-exempted amount will not affect the cost base or reduced cost base. The fund should advise you of these amounts in its statements.

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

Assume, for a moment, that Fred had sold his shares for $4000 instead of $6000. Fred would then have had a capital loss of $1075 (that is, his reduced cost base of $5075 less his capital proceeds of $4000).

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 $5075, he would not have made a capital gain or a capital loss.

Step 7 - Work out your total current year capital gains - label H item 17

Now you need to show the total of all of your capital gains at H. If you have more than one asset which resulted in a capital gain, you should add those amounts. If you only had one asset, show the amount of the capital gain relating to that asset. If you have any capital losses, do not deduct them from the capital gains before showing the total amount at H.

Example

From step 3, Fred would show $925 at label H item 17.

Handy hint

If you also received a distribution from a managed fund, you should include here your total capital gains (from step 3 chapter C1).

Step 8 - Applying capital losses against capital gains

If you have no capital losses from assets you disposed of this year, nor a capital loss from an earlier year that you were told to carry forward to this year, go to step 9.

Otherwise, you can now deduct your capital losses from the amount you wrote at H. You may do this in the order that gives you the greatest benefit.

If your capital losses are greater than your capital gains, go to step 11.

Example

If we go back to the assumption we made at step 6 (Fred selling his shares for $4000), and if we assume Fred has no other capital gains or capital losses, Fred had a $1075 net capital loss that he can carry forward to future years.

Handy hint

The greatest benefit is probably to deduct capital losses against:

4. capital gains for which neither indexation nor the discount method applies (that is, if you bought and sold your shares within 12 months)
5. capital gains calculated under the indexation method, and then
6. capital gains to which the CGT discount can apply.

Step 9 - Applying the CGT discount

Where available, you can now apply the CGT discount to any remaining discount method capital gains by reducing these capital gains by 50%.

Example

If Fred had kept his shares for at least 12 months, he could have reduced his $925 gain by the CGT discount of 50% to arrive at a net capital gain of $462 (cents are not shown).

$925 x 50% = $462 (cents are not shown)

Note: when you cannot apply the CGT discount

Remember, you cannot apply the CGT discount to capital gains calculated using the indexation method. You also cannot apply the CGT discount to other capital gains for which the discount is not available, for example CGT assets you bought and sold within 12 months.

Step 10 - Work out your net capital gain - label A item 17

At A you show the total of your remaining:

• capital gains using the indexation method
• capital gains to which the CGT discount of 50% has been applied, and/or
• capital gains using the 'other' method.

Example

Fred would show his net capital gain of $462 at label A item 17

Step 11 - Work out your carry forward losses - label V item 17

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 a '0' (zero) at A.

At V, show the amount by which all your capital losses are greater than your capital gains. You can now carry these capital losses forward to later income years, until you have capital gains from which to deduct these capital losses.

Example

Continuing the example from step 8, with Fred's sale price of $4000, he would show a '0' (zero) at label A and $1075 at label V item 17.

Non-assessable payments

There can be non-assessable payments in relation to both shares and units.

1. 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 BHP and Amcor have made recent non assessable payments-see appendix 2). 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. You can use the indexation method if you bought the shares before 21 September 1999.

2. 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 .

Chapter B2: Worked examples for shares and units

The following examples show how capital gains tax works in various situations where people have bought and sold shares and units. They may help you calculate your own capital gains tax obligation and complete item 17.

Example 1

Sonya has a capital gain from one parcel of shares that she bought before 21 September 1999 and sold less than 12 months later

In August 1999 Sonya bought 1000 shares in Tulip Ltd for $1500, including brokers fees, and sold them in July 2000 for $2300. 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 methods. So her capital gain will be

$2300 - $1500 = $800

As she has no other CGT events and does not have any capital losses, Sonya completes item 17 as follows:

Label G Yes

Net capital gain - Label A $800

Total year capital gains - Label H $800

Example 2

Andrew has a capital gain from the sale of units which he bought before 21 September 1999 and sold more than 12 months later

In May 1999 Andrew bought 1200 units in Share Trust for $1275, including brokerage fees. He sold the units in February 2001 for $1595.

This was 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 method or the discount method, whichever gives him the best result.

Indexation method

If Andrew calculates his capital gain or capital loss using the indexation method, the indexation factor is:

CPI figure for September 1999 quarter CPI figure for June 1999 quarter

=

123.4 122.3

=

1.009

His indexed cost base is:

His cost ($1275) x 1.009 = $1286.48

So his capital gain is:

Capital proceeds	$1595.00
less
Indexed cost base	$1286.48
Capital gain	$308.00

Discount method

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

Capital proceeds	$1595
less
Cost base	$1275
Total capital gain	$320
less discount*	$160
Capital gain	$160

*If Andrew does not have any capital losses.

Andrew chooses the discount method because it gives him a lesser capital gain.

As he has no other CGT events and does not have any capital losses, Andrew completes item 17 as follows.

Label G Yes

Net capital gain - Label A $160

Total year capital gains - Label H $320

Example 3

Fatima has a capital gain from one parcel of shares which she was given before 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 $2500. She sold the shares in October 2000 for $4500.

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 method or the discount method, whichever gives her the best result.

Indexation method

If Fatima calculates her capital gain or capital loss using the indexation method, the indexation factor is:

CPI figure for September 1999 quarter CPI figure for December 1986 quarter

=

123.4 79.8

=

1.546

Her indexed cost base is:

Her cost ($2500) x 1.546 = $3865

So her capital gain is:

Capital proceeds	$4500
less
Indexed cost base	$3865
Capital gain	$635

Discount method

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

Capital proceeds	$4500
less
Cost base	$2500
Total capital gain	$2000
less discount*	$1000
Capital gain	$1000

*If Fatima does not have any capital losses.

Fatima chooses the indexation method because it gives her a lesser capital gain.

As she has no other CGT events and does not have any capital losses, Fatima completes item 17 as follows:

Label G Yes

Net capital gain - Label A $635

Total year capital gains - Label H $635

Example 4

Colin has a capital gain from some units he bought after 21 September 1999 and redeemed less than 12 months later

Colin bought 500 units in Equity Trust for $3500 in October 2000 and redeemed them in June 2001 for $5000 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	$5000
less
Cost base	$3500
Capital gain	$1500

As he has no other CGT events and does not have any capital losses, Colin completes item 17 as follows:

Label G Yes

Net capital gain - Label A $1500

Total year capital gains - Label H $1500

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 21 September 1999 and sold more than 12 months later

Mei-Ling bought 400 shares in TKY Ltd for $15 000 in October 1999 and sold them for $23 000 in February 2001. The sale is a CGT event.

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	$23000
Less
Cost base	$15000
Total Capital gain	$8000
Less discount*	$4000
Capital gain	$4000

*If Mei Ling does not have any capital losses.

As she has no other CGT events and does not have any capital losses, Mei-Ling completes item 17 as follows:

Label G Yes

Net capital gain - Label A $4000

Total year capital gains - Label H $8000

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 2500 shares in Machinery Manufacturers Ltd for $2700 including brokerage costs. He sold the shares in March 2001 for $2300. Mario also made a capital loss of $350 on some shares he sold in the 1998- 99 income year, but had not made any capital gains since then that he could use to offset his capital losses.

The sale is a CGT event. Mario purchased the shares before 21 September 1999 but he made a capital loss, so neither the indexation nor the discount methods will apply.

Mario calculates his capital loss for the current year as follows:

Reduced cost base	$2700
less Capital proceeds	$2300
Capital loss	$400

(This occurs because Mario's reduced cost base is the same as his cost base).

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

Capital loss for 2000 - 01 +	$400
Capital loss for 1998 - 99	$350
Net capital losses carried forward to later income years	$750

As he has no other CGT events, Mario completes item 17 as follows:

Label G Yes
Net capital gain - Label A $0
Net capital losses carried forward to later income years - Label V	$750

Chapter B3: Additional information for shares and units

This chapter covers less common situations for personal investors, including:

• purchase of shares by instalments
• share buy-backs
• takeovers and mergers
• dividend reinvestment plans
• employee share schemes, and
• bonus shares and bonus units.

Purchase of shares by instalments

If you purchased shares in the Commonwealth Bank of Australia (CBA) or the first float of Telstra from the Government (through instalment receipts) and you sold them during the year, you may have to pay capital gains tax.

If you use the indexation method to calculate your capital gain, indexation of the instalments is available from the following dates:

• for CBA
  • first instalment - 13 July 1996
  • final instalment - 14 November 1997
• for Telstra
  • first instalment - 15 November 1997
  • final instalment - 17 November 1998.

If you subscribed to the second issue of Telstra shares, this would have been after 21 September 1999 and you cannot use the indexation method for these shares.

Note:

See appendix 2 for information about some of the more recent share transactions.

Note: 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 capital gains tax. This is also the case if you paid the company or fund an amount for them.

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 time you make the capital gain or capital loss will depend on the conditions of the particular buy-back offer.

If the information provided by the company is not sufficient for you to calculate your capital gain or capital loss, you may need to seek advice from the ATO.

Takeover 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.

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.

You are only entitled to scrip for scrip roll over if you would have made a capital gain. Usually, the company would have advised you if the other scrip for scrip roll over conditions were satisfied.

Dividend reinvestment plans

Under these plans, shareholders can choose to have their dividend used to acquire additional shares in the company instead of receiving a cash payment. For capital gains tax 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.

Employee share schemes

If you acquired shares at a discount under an employee share scheme, you would have included the amount of the discount in your assessable income in your tax return.

For capital gains tax purposes, the cost base of the shares is the amount paid to the company when you acquired them, plus the amount of the discount included in your assessable income under the ordinary tax provisions.

As employee share schemes vary, you may need to seek advice from the ATO if you have sold shares of this type.

Note: convertible notes

A convertible note is another type of investment you can make in a company or unit trust. Only convertible notes acquired from 20 September 1985 to 10 May 1989 inclusive can be subject to capital gains tax. Your capital gain or capital loss will depend on the amount of capital proceeds you receive on the sale or redemption of the convertible note.

Convertible notes earn interest on the amount you pay to acquire the note until its expiry date. On that date, you can either:

• ask for the return of the money you paid to acquire the note (in which case capital gains tax may be payable), or
• convert that amount to acquire new shares or units.

If you acquired shares or units by converting a note, you may need to seek advice from the ATO about calculating the cost base of the shares or units.

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 as a dividend in whole or part. The shareholder may also pay an amount to obtain 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 units, you may need to seek advice from the ATO to determine your capital gains tax liability.

Note

For more information about the issues covered in this chapter, obtain a copy of the Guide to capital gains tax 2001. You and your shares is another useful publication.

Part C: Distributions from managed funds

Chapter C1: How to work out your capital gains tax for managed fund distribution

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 capital gains tax obligation:

• capital gains, and
• non assessable payments.

The following steps in chapter C1 show 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.

Handy hint

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 show capital gains at item 12 - Partnerships and trusts.

Note: new terms

We may have used some terms that are not familiar to you. The first time these words are used they are linked to their explanation under the heading Explanation of terms

Handy hint

Fund managers may use different terms to describe the calculation methods and other terms used in this guide. For example, they may refer to indexation and other method gains as non discount gains.

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. You should be able to find this out from the statement from your managed fund.

This statement should also show which of the calculation methods the fund has used to calculate the gain: the indexation method, the discount method or the 'other' method.

These methods are explained in part A, part B and in the Explanation of terms.

Handy hint

You must use the same method(s) as the fund to calculate your capital gain.

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 enables you to reduce your grossed-up capital gain by your capital losses and then later discount the reduced gain.

Example

Tim received a distribution from a fund that included a discounted capital gain of $400. Tim's statement says that only the CGT discount of 50% has been applied.

Tim grosses up the capital gain to $800 (that is, $400 x 2).

Handy hint

If the managed fund has also shown the grossed up amount of the discounted capital gain on your distribution statement, you can use that amount.

Step 3 - Complete label H item 17

You need to show the total of your capital gains at H. If you have more than one capital gain, including a distribution from a fund, you should add all those amounts. If you have any capital losses from other assets, do not deduct them from the capital gains when showing the total amount at H.

Example

Tim shows $800 at label H item 17.

Step 4 - Applying capital losses against capital gains

If you have no capital losses from assets you disposed of this year, and no capital loss from an earlier year that you were told to carry forward to this year, go to step 5.

Otherwise, from the amount you wrote at H, you can now deduct your capital losses. You may do this in the order that gives you the greatest benefit.

If your capital losses are greater than your capital gains, go to step 7.

Example

Let us assume that Tim had a loss from a sale of shares of $200. Tim deducts the $200 from the $800 grossed up amount to arrive at $600. He applies the CGT discount to this $600.

Handy hint

The greatest benefit is probably to deduct capital losses from capital gains distributed from the fund in the following order:

7. 'other' capital gains
8. indexation method capital gains, and then
9. discount method capital gains.

Step - 5 Applying the CGT discount

Where available, you can now apply the CGT discount to any remaining grossed-up capital gains by reducing those capital gains by 50%.

Example

Tim calculates 50% of his capital gain (after applying capital losses) to which the CGT discount can apply:

$600 x 50% = $300.

Tim has a capital gain of $300.

Note: Applying the CGT discount

Remember, you cannot apply the CGT discount to indexation method or 'other' method capital gains distributed from the fund.

STEP 6 - Work out your net capital gain-label A item 17

At A you show the total of your capital gains after applying any capital losses (step 4) and then applying the CGT discount to any part of your capital gain that is eligible (step 5).

Show the result at A.

Example

Tim shows $300 at label A item 17.

Step 7 - Work out your carry forward losses - label V item 17

If your capital losses were greater than your capital gains, you were directed to this step from step 4.

If you have capital losses remaining, you should show a '0' (zero) at A.

At V, show the amount by which your capital losses are greater than your capital gains. You can now carry these capital losses forward to later years, until you have capital gains against which you can deduct these capital losses.

Note

For more information about capital gains tax and managed fund distributions, obtain a copy of the Guide to capital gains tax 2001.

Chapter C2: Non-assessable payments from a managed fund

Non assessable payments from a managed fund to a unit holder are common. If relevant to you, these non assessable payments may be shown on your statement from the fund as:

• tax free amounts (where certain tax concessions allowed to the fund, for example, deductions for the cost of buildings, 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 allowed to the fund on its capital gains and accounting differences in income).

Tax-exempted amounts do not affect your cost base or reduced cost base. However, if your statement shows any tax deferred, CGT-concession or tax-free amounts, you adjust the cost base and reduced cost base of your units for future purposes as follows:

• cost base - add the tax deferred amounts and the CGT-concession amounts received before 1 July 2001 and deduct the total from the cost base, or
• reduced cost base - add the tax-deferred amounts, the CGT-concession amounts received before 1 July 2001, and the tax-free amounts and deduct the total from the reduced cost base.

The cost base and reduced cost base adjustments are more complex if you deducted capital losses from a grossed-up capital gain. If this applies to you, see the worked example for Ilena to work out how to make the adjustments.

If the total of the tax-deferred amounts and the CGT-concession amounts received before 1 July 2001 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 21 September 1999.

Handy hint

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 capital gains tax for 2000 - 01 and complete item 17.

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 2001. The fund gave him a statement showing he had received $550 assessable income, including the following capital gains:

• $100 using the discount method (grossed-up amount $200)
• $75 using the indexation method, and
• $28 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 $1200 and $1050 respectively.

Bob has no other capital gains or losses for the 2000- 01 income year.

Bob follows these steps to work out the amounts to show on his tax return.

Bob works out how much of the fund distribution to show as income by deducting the total of the capital gains on his statement from the total assessable income distributed to him:

$550 - $203 = $347.

Bob shows the $347 at item 12 - Partnerships and trusts.

As Bob has a capital gain which the fund reduced under the CGT discount of 50% ($100), he includes the grossed up amount ($200) in his total current year capital gain.

So Bob adds the grossed up amount to his indexed method and 'other' capital gains to work out his total current year capital gains:

$200 + $75 + $28 = $303

As Bob has no other capital gains or losses, his net capital gain is the amount of capital gain included in his distribution from the fund ($203).

Bob completes item 17 as follows:

Label G Yes
Net capital gain - Label A $203
Total year capital gains - Label H	$303

Records to keep

The tax deferred amount Bob received is not included in his income or his capital gains, but it affects the cost base and reduced cost base of his units in OZ Investments Fund for future income years.

Bob did not deduct any capital losses from his discount method capital gains, so he deducts the tax deferred amount from both the cost base and reduced cost base of his units as follows:

Cost base	$1200
less tax-deferred amount	$105
New cost base	$1095
Reduced cost base	$1050
less tax-deferred amount	$105
New reduced cost base	$945

Example 2

Ilena's capital loss is greater than her non discounted capital gain

Ilena invested in XYZ Managed Fund. The fund makes an income distribution of $400 to Ilena for the year ending 30 June 2001 and provides her with a statement that shows her distribution included:

• $65 discounted capital gain, and
• $90 non discounted capital gain.

The statement shows Ilena's distribution also included:

• $115 tax-deferred amount, and
• $35 tax-free amount.

Ilena has no other capital gains but made a capital loss of $100 on some shares she sold during the year.

From her records, Ilena knows the cost base and reduced cost base of her units are $5000 and $4700 respectively.

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.

To work out how much of the fund distribution to show as income, Ilena subtracts the total of the capital gains on her statement from the income distribution:

$400 - ($65 + $90) = $245.

Ilena shows the $245 at item 12 - Partnerships and trusts.

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

Ilena adds her grossed up and non discounted capital gains to work out her total current year capital gains:

$130 + $90 = $220

She shows her total current year capital gains ($220) at label H item 17.

After Ilena has grossed up the discounted capital gain received from the fund, she subtracts her capital losses from her capital gains.

Ilena can choose which capital gains she subtracts the capital losses from first. In her case, she will receive the best result if she:

• first subtracts her capital losses from her non discounted capital gains:
  • $90 - $90 = $0
• then subtracts any remaining capital losses from her grossed-up gains:
  • $130 - $10 = $120

Ilena applies the CGT discount of 50% to the remaining grossed up capital gains:

$120 - ($120 x 50%) = $60

Ilena adds up the capital gains remaining after applying the CGT discount. The total is her net capital gain:

$60 + $0 = $60

Ilena completes item 17 as follows:

Label G Yes
Net capital gain - Label A $60
Total year capital gains - Label H	$220

Handy hint

A CGT concession amount received before 1 July 2001 will be treated in the same way as a tax-deferred amount.

Records to keep

The tax-deferred and tax-free amounts Ilena received are not included in her income nor 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 deducted $10 capital losses from her grossed up capital gain before she applied the CGT discount of 50%. In effect, $5 of the tax deferred amount was offset against her capital losses. So she reduces the tax deferred amount by $5 and deducts the remainder ($110) from the cost base and reduced cost base of her units as follows:

Cost base	$5000
less tax-deferred amount	$110
New cost base	$4890
Reduced cost base	$4700
less tax deferred amount ($110) + tax free amount ($35)	$145
New reduced cost base	$4555

Appendixes

Appendix 1: Consumer price Index (CPI) Figures

All groups - weighted average of eight capital cities
	Quarter ending
Year	31 March	30 June	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	103.3	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

Appendix 2: Recent share transactions

Company	Details of transaction
Amcor Ltd	Non assessable payment On 14 April 2000 Amcor shareholders received a return of capital of $1.22 for each Amcor share they held. It was applied to acquire PaperlinX shares. The return of capital is a non-assessable payment, so shareholders who received PaperlinX shares should reduce the cost base and reduced cost base of their Amcor shares by $1.22 per share.
AMP Ltd	Demutualisation Acquisition cost for AMP Ltd shares is $10.43 per share and acquisition date is 20 November 1997. Note: Distribution from AMP Foundation Trust In addition to their final dividend in April 2001, AMP shareholders received a distribution from the AMP Foundation Trust. The trust used the discount method to calculate its capital gain and this will be shown on shareholders' distribution notices as the full capital gain (the grossed up amount). Shareholders do not need to gross up the capital gain amount themselves.
BHP Ltd	Non-assessable payment On 31 October 2000 BHP shareholders received a return of capital of 66 cents for each BHP share held. It was applied to acquire OneSteel shares. The return of capital is a non-assessable payment, so shareholders who received OneSteel shares should reduce the cost base and reduced cost base of their BHP shares by $0.66 per share.
Boral Ltd	Demerger Origin Energy Ltd (formerly called Boral Ltd) shareholders received one new Boral Ltd share for every two old Boral Ltd shares held. Acquisition cost of the new Boral Ltd shares is $3.16 per share and the acquisition date is 1 March 2000.
Coca-Cola Amatil Ltd	Non assessable payment On 23 June 1998 Coca-Cola Amatil shareholders received a return of capital of $3.86 for each Coca-Cola Amatil share they held. It was applied to acquire Coca-Cola Beverages shares. The return of capital is a non-assessable payment, so shareholders who received Coca-Cola Beverages shares should reduce the cost base and reduced cost base of their Coca-Cola Amatil shares by $3.86 per share.
Coca-Cola Beverages Ltd	Demerger Coca-Cola Amatil Ltd shareholders entitled to one Coca-Cola Beverages share for each Coca-Cola Amatil share held. Acquisition cost of Coca-Cola Beverages shares is $3.86 per share and the acquisition date is 23 June 1998.
Commonwealth Bank of Australia Ltd	Public share offer For the first instalment: Acquisition date and indexation available from 13 July 1996. For the final instalment: Indexation applies from the date of receipt by the trust of the payment due on 14 November 1997 or of the discounted sum paid earlier. Share buy-back The buy-back price of $27.84 included $10.00 capital proceeds and a $17.84 fully franked dividend. The disposal date was 2 April 2001.
Lend Lease Ltd	Share buy-back The buy-back price of $19.88 included $7 capital proceeds and a $12.88 fully franked dividend. The disposal date was 2 October 2000.
NRMA Insurance Group Ltd (NIGL)	Demutualisation Acquisition cost of NIGL shares allocated to shareholders is $1.78 per share. Acquisition date was 19 June 2000. For additional shares purchased through the facility, acquisition cost is $2.75 and acquisition date was 6 August 2000. Share buy-back If you sold shares that you obtained under the demutualisation, there will be no capital gains tax consequences. This is because the buy back price was paid in June 2001 and consisted of two components: capital proceeds of $1.78 and a fully franked dividend equal to the balance of the buy back price in excess of $1.78. If you sold any of the additional shares you purchased through the facility (up to 181 shares), you will make a capital loss. For example:.
	Capital proceeds	$1.78
	Reduced cost base	$2.75
	Capital loss (per share)	$0.97
	If you acquired your shares by purchasing them on the stock exchange, whether you made a capital gain or capital loss will depend on the cost base of your shares.
OneSteel Ltd	Demerger BHP shareholders received one OneSteel Ltd share for every four BHP shares held. Acquisition cost of OneSteel shares is $2.64 per share and acquisition date is 31 October 2000.
Origin Energy Ltd	Non-assessable payment On 1 March 2000 shareholders in Origin Energy Ltd (formerly called Boral Ltd) received a return of capital of $3.16 for each Origin Energy share (or $1.58 for each old Boral Ltd share) held. It was applied to acquire the new Boral Ltd shares. The return of capital is a non-assessable payment, so shareholders who received new Boral Ltd shares should reduce the cost base and reduced cost base of their Origin Energy shares by $3.16 per share.
PaperlinX Ltd	Demerger Amcor shareholders were entitled to one PaperlinX share for every three Amcor shares they held. For each Amcor share they held, they received a return of capital of $1.22, which was applied to acquire PaperlinX shares. Acquisition cost of PaperlinX shares is $3.66 per share and acquisition date is 14 April 2000.
Suncorp-Metway Ltd	Exchange of Series 1 Exchanging Instalment Notes (EINs) Suncorp-Metway Ltd shares received in exchange for Series 1 EINs were acquired on 1 November 1999. Their acquisition cost is $8.20 per share.
Telstra	Public Share Offer 1 For the first instalment: Acquisition of shares was (and indexation available from) 15 November 1997. For the final instalment: Indexation applies from the date of receipt by the trust of the payment due on 17 November 1998. 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 applies because acquisition was after 21 September 1999. For the final instalment: No indexation as above.

Explanation of terms

Assessable income

This is all the income you have received that should be included in your income tax return. Generally, assessable income does not include non-assessable payments from a unit trust, including a managed fund.

Capital gain

You may make a capital gain (or profit) as a result of a CGT event, for example when you sell an asset for more than you paid 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

Capital gains tax (CGT) refers to the tax you pay on any capital gain you make and include in your annual income tax return. For example, when you buy (or otherwise acquire) or sell (or otherwise dispose of) an asset as part of a CGT event, you are subject to capital gains tax.

Capital loss

Generally, you may make a capital loss as a result of a CGT event if you sold an asset for less than you paid for it. Your capital loss is the difference between your reduced cost base and your capital proceeds.

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 amount you receive from a liquidator
• the amount you receive on a merger/takeover, or
• the market value if you give them away.

CGT asset

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 the Guide to capital gains tax 2001.

CGT-concession amounts

These amounts are the CGT discount component of any actual distribution from a managed fund.

CGT event

A CGT event happens when a transaction takes place such as the sale or purchase of a CGT asset. The result is usually a capital gain or capital loss.

Cost base

The cost base of an asset is generally what it cost you. It is made up of five elements:

• money you paid for the asset
• incidental costs of acquiring or selling it (eg brokers fees and stamp duty)
• 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 (eg if you paid a call on shares), and
• what it has cost you to preserve or defend your title 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. Generally, interest you have paid on money borrowed to buy shares or units will not form part of your cost base.

Demutualisation

A company demutualises when it changes its membership interests to shares. If you received shares as part of a demutualisation of an insurance company (eg the NRMA), you may be subject to capital gains tax when 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.

Discount method

The discount method is one of the ways to calculate your capital gain if:

• the CGT event happened after 11.45 am 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 11.45 am on 21 September 1999, you can choose either the discount method or the indexation method, whichever gives you the best result.

The examples in part B of this guide show how the discount method works.

Discounted capital gain

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 in your income tax return before you apply any capital losses and then the CGT discount.

Dividend reinvestment plans

Under these plans, shareholders can choose to have their dividend used to acquire additional shares in the company instead of receiving a cash payment. For capital gains tax 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.

Employee share schemes

If you acquired shares at a discount under an employee share scheme, you would have included the amount of the discount in your assessable income in your tax return.

For capital gains tax purposes, the cost base of the shares is the amount paid to the company when you acquired them, plus the amount of the discount included in your assessable income under the ordinary tax provisions.

Gross up

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.

Income year

The income year is the financial year relating to your current income tax return.

Indexation factor

The factor is worked out based on the Consumer Price Index (CPI) figures in appendix 1 of this guide.

The indexation factor is the CPI figure for the September 1999 quarter (123.4), divided by the CPI figure for the quarter in which you incurred costs relating to the asset. The result is rounded to three decimal places. The indexation of the cost base of an asset is frozen as at 30 September 1999.

Indexation method

The indexation method is one of the ways to calculate your capital gain if you bought a CGT asset before 11.45 am on 21 September 1999. This method allows you to increase the cost base by applying an indexation factor (based on increases in the Consumer Price Index up to September 1999).

You cannot use the indexation method for:

• CGT assets bought after 11.45 am on 21 September 1999, or
• expenditure relating to a CGT asset acquired after that date.

Some examples in part B show 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 the best result.

Net capital gain

The 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 label A item 17.

Non-assessable payment

A non-assessable payment is a payment received from a company or fund that is not assessed as part of your income in your income tax return. This includes some distributions from unit trusts and managed funds and, less commonly, from companies.

'Other' method

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).

Reduced cost base

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 interest on monies borrowed.

Roll-over

Roll-over allows a capital gain to be deferred or disregarded until a later CGT event happens.

Scrip for scrip roll-over

This generally applies 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 capital gains tax 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.

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 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.

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.

Tax-deferred amounts

These amounts include indexation allowed to a managed fund on its capital gains and accounting differences in income.

Tax-exempted amounts

These amounts are generally made up of exempt income of the managed fund, 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.

Tax-free amounts

These amounts allow the managed fund to pay greater distributions to its unit holders. This is due to certain tax concessions funds can receive (eg deductions for the cost of buildings).

More 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 2001
• Capital gains tax concessions for small business
• You and your shares

These publications are available by phoning 1300 720 092.

If you need further information:

• request A Fax From Tax on 13 28 60
• contact the ATO on 13 28 61, or
• seek advice from a professional tax adviser.

If you do not speak English and need help from the ATO, phone the Translating and Interpreting Service (TIS) on 13 14 50.

People with a hearing or speech impairment can phone the Telephone Typewriter Service on 1300 130 478.

Last Modified: Tuesday, 5 December 2006

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Copyright

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ATO references:
NO NAT 4152