Calculating cost base/average unit price

Hi,

Hopefully an easy question, although ATO site and google proved fruitless.

I've been informed that its okay to use the average cost instead of FIFO for shares. Just wondering if when calculating the average cost, do I include costs such as brokerage (inc GST), in doing this calculation.

eg.
Company xyz:
1/1/09 Buy 100 @ $1.50 + $55 brokerage ($50 + $5gst)
2/2/09 buy 50 @ $1.00 + $44 brokerage ($40 + $4gst)

Is the average cost:
((100*1.50)+(50*1.00))/150 = 150shares @ cost base of $1.33
OR
100*1.50 + $55brokerage = $205
50* $1.00 + $44brokerage = $94

= $299/150shares = $1.99 cost base per share

I have incured the brokerage costs including GST as part of the purchase, so I think it should be the 2nd example.

It's important as I'll have some instances this financial year where I've purchased shares in the same company at various times, and then sold differing size parcels to those purchased, whilst still holding some shares (confusing!).

Hope this makes sense, but if I can explain it better please let me know

 

Hi Brisguy,

IMHO, similarly to when you buy a property, any commissions/costs are included in the cost base for taxation purposes as far as I'm aware.

I'm not an accountant or tax adviser so you'd want to speak to your registered professional before making a taxation decision.

Cheers,

Dan

 

According to this ATO publication, brokerages are included in the calculation of the cost base.

http://www.ato.gov.au/content/downloads/IND00191827n41520609.pdf

A question I have with average cost method is, how would the 50% discount or indexation works on holdings that are more than 1 year old? Or we just avoid using this method in general for trust/individual with holdings that are more than 1 year old?

 

Hi Cheyeen,

I don't see why the 50% CGT discount wouldn't work...

I imagine that a trust would try and distribute as much income as possible to avoid paying maximum Marginal Tax Rate. I am unsure if trusts are able to use the CGT discount.

Cheers,

Dan

PS Speak to your tax adviser or accountant before making a tax decision.