This information is an excerpt from the Australian Taxation Office. For more information please click on :-
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HOW CAPITAL GAINS TAX AFFECTS SHARES AND UNITS.

For CGT purposes, shares in a company or units in a unit trust are treated in the same way as any other assets.
As a general rule, if you acquired any shares or units on or after 20 September 1985, you may have to pay tax on any capital gain you make when a CGT event happens to them.

This would usually be when you sell or otherwise dispose of them. It also includes where you redeem units in a managed fund by switching them from one fund to another. In these cases, CGT event A1 happens.

Profits on the sale of shares held in carrying on a business of share trading are included as ordinary income rather than as capital gains.

A CGT event might happen to shares even if a change in their ownership is involuntary – for example, if the company in which you hold shares is taken over or merges with another company. This may result in a capital gain or capital loss.

This chapter also deals with the receipt of non-assessable payments from a company (CGT event G1 ) while chapter 4 deals with non-assessable payments from a trust (CGT event E4). If you own shares in a company that has been placed in liquidation or administration, CGT event G3 explains how you can choose to make a capital loss when the liquidator or administrator declares the shares (or other financial instruments) worthless.

There are a number of special CGT rules if you receive such things as bonus shares, bonus units, rights, options or non-assessable payments from a company or trust.

Special rules also apply if you buy convertible notes or participate in an employee share scheme or a dividend reinvestment plan.

The rest of this chapter explains these rules and has examples showing how they work in practice. The flowcharts at appendix 3 will also help you work out whether the special rules apply to you.

If you need more information about how other income tax provisions affect your share investments, see You and your shares 2007 (NAT 2632–6.2007).

IDENTIFYING SHARES OR UNITS SOLD

Sometimes taxpayers own shares or units that they may have acquired at different times. This can happen as people decide to increase their investment in a particular company or unit trust.

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

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, we will also accept an average cost method to determine the cost of the shares disposed of. You can only use this average cost method when: the shares are in the same company, the shares are acquired on the same day, the shares have identical rights and obligations, and you are not required to use market value for cost base purposes.

This chapter explains your CGT obligations if you sold or otherwise disposed of any shares or units in a unit trust (including a managed fund) in the 2006–07 income year. It also explains what happens when you have a CGT event under under a demerger. For information about distributions from a unit trust (other than under a demerger) in the 2006–07 income year, see chapter 4.

MANAGED FUND

A managed fund is a unit trust. Where we refer to a unit trust in this guide we are also referring to a managed fund.




	
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