Capital Gain Tax Calculation
Capital gain tax consequences of my share sales
Scenario:
My partner and I are Australian residents. In April 1997 we sold our real estate investment, which we had bought in 1965 for $2m. We split the proceeds 50-50 and on 11 November 1997 both invested in shares:
Mega mining ltd, number of shares=125,000, share price=$4, investment= 500,000
Global media ltd, number of shares=62,500, share price=$8, investment= 500,000
My partner acquired shares in her own name while I used my company acquired shares.
On September 2016, we decided to sell these shares, sale proceeds are as follow:
Mega mining ltd, number of shares=125,000, share price=$10, investment= 1,250,000
Global media ltd, number of shares=62,500, share price=$6, investment= 375,000
Advise us on the CGT consequences of our share sales
Calculation:
Although the gain from transactions can give rise to tax liability (FC of T v Whitfords Beach Pty Ltd 82 ATC 4031), the mere realization of an investment does not raise the tax liability (Scottish Australian mining co ltd v FC of T （1950）81 CLR 188).
The acquisition and disposal of shares, acquired after 19 September 1985, attracts CGT (ITAA97 S 100-25). Any capital gain on disposal is added to the taxpayer’s taxable income while loss if not able to offset against capital gains, is carried forward to offset in future years (ITAA97 Div102).
Assets including shares, acquired before 21 September 1999 and disposed of one or more years later, the taxpayer could index the cost base to reduce the capital gain (ITAA97 Div114). Assets including shares, acquired after 21 September 1999, the taxpayer could discount the taxable capital gain by 50% (ITAA97 Div115). Therefore, Assets including shares, acquired before 21 September 1999 and disposed of at least one year for certain categories, the taxpayers could choose one option between these two.
For your partner, she had capital gain and capital loss and because she acquired shares before 21 September 1999 and disposed of after 18 years, so she could choose the option. For yourself, as your company acquired these shares, so you could only use the index cost base (s 115-10).
It should be noticed that any capital losses are offset against capital gains before applying the discount percentages. If had capital losses in the case, then the cost base is not indexed （ITAA97 S100-40, S 10-45 and s 100-50）.
Your partner - 50% discount:
Mega mining ltd: capital gain=125,000*10(sale)-125,000*4（cost base）
=1,250,000-500,000=750,000
Global media ltd: capital loss=62500*6(sale)-62500*8（cost base）
=375,000-500,000=125,000
Nominal capital gain=750,000-125,000=625,000
Net capital gain=625,000/2=312,500
Your partner - indexed cost base
Mega mining ltd: capital gain=125,000*10(sale)-125,000*4（cost base）*1.028（indexed cost base rate） =1,250,000-500,000=750,000
Global media ltd: capital loss=62500*6(sale)-62500*8（cost base）
=375,000-500,000=125,000
Net capital gain=736,000-125,000=611,000
*indexation calculation=68.7/66.8=1.028
You - indexed cost base
Mega mining ltd: capital gain=125,000*10(sale)-125,000*4（cost base）*1.028（indexed cost base rate） =1,250,000-500,000=750,000
Global media ltd: capital loss=62500*6(sale)-62500*8（cost base）
=375,000-500,000=125,000
Net capital gain=736,000-125,000=611,000
Therefore, for your partner, the 50% discount is better than indexed cost base, and the amount will add to her accessable income. However, for yourself, you could only use the indexed cost base and the amount is recognized as your company’s assessable income.
