Hi All, Possibly a stupid question (I know, the only stupid questions are the ones you don't ask, blah blah.. ), but I'm trying to understand how capital gains are measured when selling shares. Say I buy $1000 worth of share X. Some time later the values of the shares double, so my holding is now worth $2000. If I decide to sell half my holding, ie, $1000, do I need to pay capital gains tax. I guess what I'm trting to understand is whether the capital gains are measured on a "per share" basis (I have effectively made a $500 gain in this case), or is it based on the whole lot. Thanks. John.
Yes per share basis. If you buy a share for $1 and sell it for $2 the potential capital gain is $1 on which you'll be taxed. BUT 1) there may be costs which will form part of the cost base which increases the $1 and thus reduces the capital gain 2) potentially there are CGT discounts which could apply, the chief one being the general 50% CGT discount where you've held the asset for at least 12 months (note if you held the shares in your own name or they were held by your trustee then the discount would apply. For super funds the discount is 1/3rd I think so tax down from 15% to 10%.) Nick can be more specific though - talking about CGT events at 9pm makes my brain hurt N.
Excellent - thanks for that Nigel. I'm sure there are lots of subtleties, but this was the main point I was trying to find out. John.
Now you mention it.... What happens when there is a part sale of a shares holding (or managed fund) that was purchased in several allotments at different prices. I my case I sold about 60K of Navra units last year. I selected two parcels I had purchased, totaled those units and redeemed them The total was about the amount I wanted to sell and just so happened to give me a nice capital loss right before the end of June. Now I got my Capital Gains Statement and the units have been allocated from other parcels and not all neat whole parcels, but it looks like the first ones every bought and part of the next. I believed when when units are sold, you can choose to sell which ever units you like for tax calculations. It does not have to be the first bought or the last. In my case I chose whole parcels to sell to identify their purchase price and hence profit/loss. What is the accepted method for calculating profit/loss of partial sale of shares/fund units bought in multiple parcels at different prices ?
For shares where you can identify the actual parcels when you sell, you may choose any arbitrary parcel you own depending on your desired outcome. Alternatively, you simply use the FIFO method: first-in-first-out. With managed fund units - there is no way to identify the individual units ... there are no "parcels" as such. Hence, the only way you can calculate things for tax purposes is the FIFO method. I have a spreadsheet I use to calculate the potential tax bill for managed fund unit sales, but it's a bit complex to just post online. I've been thinking about how I might be able to build a little application online that allows people to do the calculations easily and show how it all works.
Really ? This from the ATO implies otherwises, although without any actual example for MF it does group shares and units together. Can a forum account please advise on the calculation of base costs for managed funds units where parcels were purchased at different times at different prices?
Surely, as long as you can keep track of which units you are cashing in and reduce each parcel by the number involved then you are keeping a accurate and auditable record for the ATO. I record my units in a stock program which records each unit and the base price including costs. I can then pick out units from any of these recorded batches and the program gives me a base cost for the untis. The units I select could be across every batch of units I ever bought. As mentioned at any time I can produce a report which shows how many units are left in each batch. Seems to meet the ATO requirements and my accountant is certainly happy about my approach. Cheers
The ATO state that if you can identify the units you sold then they are the ones you should use when calculating your CGT. However in Practice this is very difficult to do so the ATO accepts FIFO etc as a means to work out your tax position. The best tax position generally influences which shares are sold Cheers nickm
Thanks NickM, Would the units on a statement from MF be sufficient identification ? For example, statement says 1/07/2005 - Allocation 10,000 units 1/10/2005 - Allocation 5,000 units then on 30/6/2006 you redeemed 15,000 units and claim these 15,000 where the 10,000+5,000 purchased. In your experience is this OK? And yes you are right, tax position is a great influence
Yes that would be fine. An identifiable example would be if you owned units in say the Darcy unit trust and redeemed / sold specific unit numbers that may have differing cost bases. CHeers Nickm
Nick, what about a slightly different version of MrDarcy's example: 1/07/2005 - Allocation 10,000 units 1/10/2005 - Allocation 5,000 units ... then on 30/6/2006, you redeemed 2,500 units. Could you arbitrarily choose to redeem those units from either allocation, depending on what is most advantageous to your current tax position ?
yes you could choose. unless eg Unit nos: 1-10,000 and 10001 - 150000 and you sold units numbered 1-2500 then you must calculate CGT based on the cost of those specific unit numbers as youcan identify the actual units sold. NIckM
From a practical point of view - how do you actually "identify" the units ? I'm talking managed fund units here.
Hi there Andy, I'm working for a client who has numerous trades over two tax years. Its getting very tedious even on excel working out the CGT. What was the name of the stock program that you used to calculate capital gains? Your smarts here is very much appreciated!
Hi, If you're running an accounting practice or have several clients you need to do CGT for you might want to look at STM by AIMS-STM. It will make your CGT a breeze. You only need to enter in transactions and it will do all corporate actions / dividends / distributions for you. J.
