CGT Cost Base for Shares/MF

TwoDogs · 19th Sep, 2005

If shares (or MF units) are purchased in parcels over time, and then some are sold at a later date, how is the cost base worked out ? Choosing the cheapest purchase price will increase CGT, the larger the purchase price the less CGT. Does one get to choose which were sold or is it just FIFO (first in first out) ?

For example, these may be the transactions:

Jul 2000: buy 2000 shares/units at $1 each
Jul 2001: buy 2000 at $1.20 each
Jul 2002: buy 5000 at 1.40 each

Jul 2005: sell 2000 at $1.50 each

or

Jul 2005: sell 7000 at $1.50 each

Simon Hampel · 19th Sep, 2005

Very good question !

Fortunately the ATO provides clear information on this.

Identifying when shares or units were acquired

Identifying when shares or units were acquired

You may own shares or units that you acquired at different times. This can happen if you decide to increase your investment in a particular company or unit trust. Also, since the original purchase of the particular investment, you may have decided to sell part of your holding.

A common question people ask when they dispose of only part of their investment is how to identify the particular shares or units they have disposed of.

This can be very important because shares or units bought at different times may have different amounts included in their cost. Also, when you dispose of any shares or units you acquired before 20 September 1985, any capital gain or capital loss you make is generally disregarded.

Therefore, in calculating the capital gain or capital loss when disposing of only part of an investment in shares or units, you need to be able to identify which ones you have disposed of.

If you have the relevant records (for example, share certificates), you may be able to identify which particular shares or units you have disposed of. In other cases, the Commissioner will accept your selection of the identity of shares disposed of.

Alternatively, you may wish to use a 'first in, first out' basis where you treat the first shares or units you bought as being the first you disposed of.

In limited circumstances, the Tax Office will also accept an average cost method to determine the cost of the shares disposed of. This average cost method can be used only when:

* the shares are in the same company
* the shares are acquired on the same day
* the shares have identical rights and obligations
* you are not required to use market value for cost base purposes.

Example: Identifying when shares or units were acquired

Boris bought 1,000 shares in WOA Ltd on 1 July 1997. He bought another 3,000 shares in the company on 1 July 2002.

In December 2002, WOA Ltd issued Boris with a CHESS statement for his 4,000 shares. When he sold 1,500 of the shares on 1 January 2005, he was not sure whether they were the shares he bought in 2002 or whether they included the shares bought in 1997.

Because Boris could not identify when he bought the particular shares he sold, he decided to use the 'first in, first out' method and nominated the 1,000 shares bought in 1997 plus 500 of the shares bought in 2002.
Click to expand...

Also read: Capital gains made by trusts

CGT on shares or units

... and most importantly, the ATO booklet: You and your shares 2004-05

I'll have to write this up as a series of FAQs I think.

TwoDogs · 19th Sep, 2005

Thanks Sim, very complete reply.

If you have the relevant records (for example, share certificates), you may be able to identify which particular shares or units you have disposed of. In other cases, the Commissioner will accept your selection of the identity of shares disposed of.

It does raise the question, how does one identify one share from another anyhow ! I suppose if bought and sold in round numbers, such as 1000 etc, this would help.

Simon Hampel · 19th Sep, 2005

These days, with electronic trading of shares (CHESS), there are no share certificates issued, and it's generally pretty difficult to track exactly which shares you sell. Perhaps the CHESS system can manage it, but my understanding is that you usually sell shares in a FIFO manner.

Perhaps someone with more share trading experience (or stock broking experience) could add more here ?

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CGT Cost Base for Shares/MF

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