Personal investors guide to capital gains tax 2002

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Appendixes

Appendix 1 - Consumer Price Index (CPI)

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

* If you use the indexation method to calculate your capital gain, the indexation factor is based on increases in the CPI up to September 1999 only.

Appendix 2 - Recent share transactions

Company	Details of transaction
Advance Property Fund	Takeover Advance unitholders are taken to have disposed of their units on the date they accepted the Stockland offer (in the period 13 September 2000 to 16 October 2000). For every 2.8 Advance units unitholders received one Stockland stapled security (comprising a unit in Stockland Trust and a share in Stockland Corporation Ltd), $1.10 cash and 0.25 Stockland option to acquire a Stockland stapled security. Scrip-for-scrip roll-over is available to the extent that Advance Property Fund units were exchanged for Stockland Trust units. In working out the value of the ineligible proceeds received by an Advance unitholder, a Stockland share is taken to represent 17 per cent of the market value of a Stockland stapled security.
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 have reduced 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 was $10.43 per share and acquisition date was 20 November 1997.
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 have reduced the cost base and reduced cost base of their BHP shares by 66 cents per share.
Boral Ltd	Demerger Origin Energy Ltd (formerly called Boral Ltd) shareholders received one new Boral Ltd share for every 2 old Boral Ltd shares held. Acquisition cost of the new Boral Ltd shares was $3.16 per share and the acquisition date was 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 have reduced the cost base and reduced cost base of th eir Coca-Cola Amatil shares by $3.86 per share.
Coca-Cola Beverages Ltd	Demerger Coca-Cola Amatil Ltd shareholders were entitled to one Coca-Cola Beverages share for each Coca-Cola Amatil share held. Acquisition cost of Coca-Cola Beverages shares was $3.86 per share and the acquisition date was 23 June 1998.
Coca-Cola Amatil Ltd	Non-assessable payment On 10 August 2001 Coca-Cola Amatil Ltd made a return of capital of 40 cents per share. The return of capital is a non-assessable payment, so shareholders in Coca-Cola Amatil Ltd should reduce their cost base and reduced cost base by 40 cents, the amount of the return of capital.
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 applied from the date of receipt by the trust of the payment due on 14 November 1997 or of the discounted sum paid earlier.
FH Faulding & Co Ltd	Takeover Mayne offered FHF shareholders 3 alternative forms of capital proceeds for each FHF share: shares in Mayne; cash and shares in Mayne; or cash and an unsecured note. Full scrip-for-scrip roll-over was available for those who chose the first option and partial roll-over was available for those who chose the 2nd option. There was no roll-over for those who chose the 3rd option. See Class Ruling CR 2001/ 39 - Income tax: capital gains: scrip-for-scrip roll-over: proposed takeover of FH Faulding & Co Limited by the Mayne Nickless Limited Group for further information.
Howard Smith Ltd	Takeover Wesfarmers Retail Pty Ltd offered Howard Smith Ltd shareholders $13.25 cash and 2 Wesfarmers Ltd shares for every 5 Howard Smith Ltd shares owned. Partial scrip-for-scrip roll-over was available for shareholders who chose that option. No roll-over was available to the extent that cash was received. See Class Ruling CR 2001/ 51 - Income tax: capital gains: scrip-for-scrip roll-over: acquisition of Howard Smith Limited by Wesfarmers Retail Pty Ltd, a 100% owned subsidiary of Wesfarmers Limited for further information.
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 equal to the reduced cost base of the share under CGT event G3.
Just Jeans Group Limited	Share buy-back The buy-back price of $1.35 includes 88 cents per share return of capital and 47 cents per share as a fully franked dividend. See Class Ruling CR 2001/ 48 - Income tax: share buy-back: Just Jeans Group Limited for more information.
Normandy Mining Ltd	Takeover With regards to the availability of scrip-for-scrip roll-over, Newmont has announced that at the time the bid closed it had acquired 96 per cent of Normandy's outstanding shares and would move to compulsorily acquire the balance. Accordingly, a partial scrip-for-scrip roll-over should be available. Roll-over will not be available to the extent that the Normandy shareholders received cash for their shares.
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.
OneSteel Ltd	Demerger BHP shareholders received one OneSteel Ltd share for every 4 BHP shares held. Acquisition cost of OneSteel shares received through the demerger was $2.64 per share and acquisition date was 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 have reduced 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 3 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 received during the demerger was $3.66 per share and acquisition date was 14 April 2000.
Ranger Minerals Ltd	Non-assessable amount On 14 February 2002 all registered ordinary shareholders at the 'record date' received a 79 cents per share return of capital in addition to a fully franked dividend of 11 cents per share. If the return of capital does not give rise to a capital gain, it will at least reduce the cost base of a share. See Class Ruling CR 2002/ 6 - Income tax: return of capital by Ranger Minerals Ltd for more information.
Santos Ltd	Share buy-back Shareholders are taken to have been paid a dividend of the difference between the buy-back price received and $2.63. Shareholders received $2.63 as consideration for the disposal of a share as well as a $3.64 fully franked dividend. The disposal date was 4 December 2001. See Class Ruling CR 2001/ 69 - Income tax: off-market share buy-back by Santos Ltd and Class Ruling CR 2001/ 70 - Income tax: preference share issue (Santos Ltd reset, convertible preference shares) for more information.
St George Bank Ltd	Sell-back rights On 19 February 2001 St George Bank Limited (SGL) granted to a trustee one right for every 20 shares held by shareholders at 23 January 2001. The rights were issued at no cost to shareholders. Each right conferred on the holder a put option to require SGL to purchase from the holder of the right one SGL share at $16.50. The market value on 19 February 2001 of each right ($ 1.89) formed part of the ordinary income of the shareholders. The income was derived on 19 February 2001. Shareholders who did not apply to take up the right received an amount of $2.12 for each right granted. In addition to the ordinary income, they also made a capital gain of 23 cents per right ($ 2.12 -$1.89). Shareholders who had rights transferred to them but failed to exercise them received an amount of $3.12 for each right. In addition to the ordinary income, they also made a capital gain of $1.23 per right ($ 3.12 -$1.89). Shareholders who sold the rights on the Australian Stock Exchange made a capital gain = proceeds -($ 1.89 + incidental disposal costs) on the disposal of the rights, in addition to the ordinary income (of $1.89). Shareholders who exercised the right to sell the shares back to SGL can include the $1.89 in the cost base of their shares. The capital proceeds for each share was $16.50. See Class Ruling CR 2001/ 75 - Income tax: capital gains: St George Bank Limited share buy-back and issue of sell-back rights for more information.
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 was $8.20 per share.
Suncorp-Metway Ltd	Exchange of Series 2 Exchanging Instalment Notes (EINs) Suncorp-Metway Ltd shares received in exchange for Series 2 EINs were acquired on 31 October 2001. Their acquisition cost was $13.34 per share.
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 for more information.
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 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 applied because acquisition was after 21 September 1999. For the final instalment: No indexation applied as above.

Explanation of terms

Assessable income

This is all the income you have received that should be included on 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 on 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 to read the publication Guide to capital gains tax .

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 costs you. It is made up of 5 elements:

• money you paid for the asset
• incidental costs of acquiring or selling it (for example, 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 (for example, if you paid a call on shares)
• 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 (for example, 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 a. m. 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 per cent. 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 a. m. on 21 September 1999, you can choose either the discount method or the indexation method, whichever gives you better result.

The examples in part B of this guide show you 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 on your income tax return before you apply any capital losses and the CGT discount.

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 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 on 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 2 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) in appendix 1 of this guide.

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 3 decimal places. The indexation of the cost base of an asset was 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 a. m. 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 a. m. on 21 September 1999 or
• expenditure relating to a CGT asset acquired after that date.

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.

LIC capital gain amount

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. (Refer to instructions for Dividend income at item 11 on the tax return.)

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 A item 17 on your tax return.

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 on 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 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.

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 received by 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.

ATO references:
NO NAT 4152