If you’re involved in shares, particularly on the selling side, you need to be aware of your tax obligations. Capital Gains Tax (CGT) is a crucial aspect of investing in shares and units in managed funds. 

It applies to various transactions beyond merely selling your shares. 

Let’s examine when CGT applies, the exceptions to its applicability, the records you need to keep, and the importance of identifying when shares were acquired.

When CGT Applies

The most common CGT event is the sale of shares or units. However, several other transactions can trigger CGT, including:

  • Redeeming Units in a Managed Fund: Switching units from one fund to another.
  • In Specie Transfers: Transferring assets in their current form rather than selling and then transferring cash.
  • Share Buybacks: Accepting an offer from a company to repurchase your shares.
  • Distributions from Unit Trusts: Receiving distributions that are not classified as dividends.
  • Non-Assessable Payments: Payments from a company that are not taxed as income.
  • Corporate Takeovers or Mergers: Holding shares in a company that undergoes a takeover or merges with another.
  • Liquidation or Administration: Owning shares in a company that enters liquidation or administration and the shares are declared worthless by the liquidator or administrator.

Whenever you sell shares or encounter another CGT event, it is necessary to calculate your CGT and report it in your income tax return.

When CGT Does Not Apply

Certain scenarios are exempt from CGT:

  • Dividends: These are taxed as ordinary income, not as capital gains.
  • Business of Share Trading: If you are engaged in a business of trading shares, profits from the sale are considered ordinary business income, not capital gains.

Records You Need to Keep

Maintaining accurate records is essential for calculating CGT. The necessary records, typically provided by your company, fund manager, or stockbroker, include:

  • Date of purchase
  • Purchase amount
  • Non-assessable payments
  • Date and amount of any calls (if shares were partly paid)
  • Sale price
  • Commissions paid to brokers
  • Details of events like share splits, consolidations, capital returns, takeovers, mergers, demergers, and bonus issues.

When buying multiple parcels of shares in the same company, keep detailed records for each parcel as they are considered separate CGT assets.

Identifying When Shares Were Acquired

When selling only some of your shares, it is crucial to identify which shares you are selling and their acquisition dates. This is important because shares bought at different times may have different costs, affecting your capital gain or loss.

For instance, transactions through the Australian Stock Exchange are recorded in the Clearing House Electronic Subregister System (CHESS). Using records from your CHESS holding statement or issuer-sponsored statement, you can select which shares you have sold and identify their costs.

Understanding when CGT applies, and the exceptions are fundamental for any investor. Proper record-keeping and identifying acquisition dates are vital for accurate CGT reporting. By following these guidelines, investors can navigate CGT complexities and manage their tax obligations effectively.

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