Guys, A quick question on capital gains tax on shares. Here is a simplified example of what I have done : Bought 200 shares of STW for $5,000 on 1 jan 2009, valued now at $6,800 Bought 200 shares of STW for $5,200 on 1 feb 2009, valued now at $6,600 Bought 200 shares of STW for $5,300 on 1 mar 2009, valued now at $6,400 Bought 200 shares of STW for $5,500 on 1 apr 2009, valued now at $5,800 Bought 200 shares of STW for $5,600 on 1 may 2009, valued now at $6,000 ....... more 'bindles' bought every month I want to sell shares that are 'older' than 12 months, ie. the jan, feb and march 2009 'bundles' so that capital gains tax is only on 50% of capital gain. My accountant says that I cannot 'choose' which of the shares I am selling since I also own shares that are less than 1 year old. But I have the contract notes for each of the bundles and can prove the purchase date. What is the cost base and tax applicable if I sell 600 shares of STW ? Regards, Gunnerguy
Each share is a separate CGT asset. Your Accountant is wrong ... provided you have kept the paperwork for each parcel purchase & sale. Your cost base will be that for each individual parcel purchase ... i.e. cost of shares, plus brokerage, plus GST on brokerage. So if you sell exactly 600 shares, their total cost base will be $5,000 + $5,200 + $5,300 (plus incidentals of purchase and sale of those parcels). Cheers, Rob
Following on from Rob, it usually more beneficial to take the highest cost base parcels that are eligible for a discount (held greater than 12 months) i.e. the $5,600 (May) + $5,500 (April) etc, to minimise the tax payable now. If you sold all your holdings you will generally pay exactly the same amount of tax regardless of the parcels selected for each sale, however for partial sales deferring tax payable by always selecting the next highest cost base parcel can be advantageous.
Rob, Thanks for confirming. This is exactly what I thought. Each Capital Gains Tax event is a separate event. ie. selling a bundle of shares. I said this to my accountant and said I was very sure, however he said he would look in to it. As for selling the highest cost base bundle so as to reduce the tax, this sounds a good idea, however this does not actually reduce tax, surely it is simply moving the payable tax, on the higher growth bundle to the next year or further ahead. Gunnerguy
Would you like to pay your money to the tax man this year or next year? What if you reinvested the saving on tax payable by deferring it to a later year?
Good point made about the timing of the capital gain. If you make a capital gain early in the financial year (for shares, property, business sales etc) - say July 2010, then the tax will not be payable until the time your 2011 tax return is due. This is 31 October 2011 for normal people (15 months) or mid May 2012 if you lodged on time the previous year and have appointed a tax agent. (i.e. up to 22.5 months) If the proceeds of what ever you sold were invested for 22 months chances are the return (even after tax) can cover a decent chunk of the extra tax from the CGT. CGT is typically a good thing - it means you have sold something for more than it cost you, typically gets a discount (50%) and it can be planned for. Always try to have a chat to your accountant before signing the contract - they can give you an estimate of the CGT and advice on how to reduce it. SM
