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Calculating cost base/average unit price

Discussion in 'Shares' started by brisguy79, 27th Aug, 2009.

  1. brisguy79

    brisguy79 New Member

    Joined:
    27th Aug, 2009
    Posts:
    1
    Location:
    Brisbane, QLD
    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
     
  2. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    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
     
  3. cheeyeen

    cheeyeen Member

    Joined:
    4th Sep, 2007
    Posts:
    22
    Location:
    Melbourne, VIC
    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?
     
  4. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    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.