Selling shares?

Hi All,

My husband was given some woolworths shares about 10 years ago from his grandfather. He recently sold them for a deposit on a house and we were wondering how CGT is worked out on this?

I suppose it depends on the profit I guess. I think (don't quote me) they were brought for $2 and my husband sold for $21 in Feb. My husband earns a good income so his tax bracket is high.

Can anyone give us advice on how CGT is worked out and roughly how much will be needed to pay? Is there anyway we can offset this?

Ems

I think you would need to work out your cost base from the value of the shares when the transfer occurred, not when they were originally purchased (check this with your accountant).

Don't forget that you will get a 50% discount on that capital gain, so the actual tax impact is somewhat less.

The only way to offset that capital gain is if you also have some capital losses ... are there any other assets you hold which show a paper loss, and which you were considering selling anyway ? You could sell them to realise the loss which would offset that gain on the shares.

Hi Sim,

Thanks for your reply.

Sorry I'm quite new at this - what does cost base mean?

Thanks
Ems

Ems

As per Sim, roughly the gain per share will be $21 - $2 = $19. He'll get a 50% discount as he has held the shares for more than 12 months, so the assessable gain per share is $9.50. If he's on the highest tax bracket then tax of $4.42 per share.

Cost base means what did the share cost? If they were given to him then the cost base is the price at the time his granfather gave them to him, OR, if the came from his grandfather's estate then they'll be cost at time of purchase by his grandfather (assuming post 9/1985)

Another way to reduce the gain may be by making super contributions to super - if he meets the 10% rule, which he won't if he's an employee.

The cost base is the effective purchase price and is used to calculate the capital gain (or loss) made.

The cost base is usually the purchase price (or in your case, the price at which the transfer occurred), and is adjusted by adding on any purchase expenses which were not able to be claimed as immediate deductions ... eg. brokerage.

Example: you buy 1000 shares @ $2.50, and pay $30 brokerage, your cost base is 1000 * $2.50 = $2500 + $30 = $2530 (this is the total cost of the investment)

You sell those 1000 shares at $6, and paid $35 brokerage on the sale, your sale proceeds are 1000 * $6 = $6,000 - $35 = $5,965 (this is how much cash you got for the sale)

So your net gain is sale proceeds minus cost base = $5965 - 2530 = $3,435

Assuming you held for more than 12 months (and assuming you have no capital losses to offset the gain against), you get a 50% discount on those gains, meaning you pay tax on $1,717.50 at your marginal tax rate.

In your situation, you probably need to establish the cost base ... I think you would need to find the share price on the date the share transfer was processed and use that ... I guess there won't be any brokerage paid - so no adjustments there.

Either way - you should get a tax expert to help you with this at tax time ... just give them all the documentation and they can work it out for you.

If you are looking for some advice on tax planning, you should see an accountant immediately (it's getting very close to the end of the financial year).

The cost base is usually what you paid for them, plus capital costs incurred (eg brokerage on the purchase and sale).

For example, if 1000 shares were bought for $2 each, and the brokerage on the purchase was $50, and then they were sold for $21 more than a year later (brokerage on sale also $50), then the cost base is
1000 x $2.00 (= $2000) + $50 + $50 = $2100.
The sale price is $21,000, so the capital gain is $21,000 - $2100 = $18,900.
Since the shares have been held for more than 1 year, then the CGT discount applies, and the taxable capital gain is then $18,900 / 2 = $9450.

In some cases, there may be a 'capital return' - which is a bit like a dividend (ie you get a cheque) - but the capital return reduces your cost base. I don't know if this happened with Woolies shares. But I expect that someone will post details for you.

Also, did you participate in the DRP? (dividend reinvestment plan). If you received a dividend (cheque or direct payment to your bank account) every six months or so then you probably didn't participate in the DRP.

If you did the DRP, your capital gains calculation will be slightly more complicated, since there will be a small parcel of shares that you will have received within the last 12 months, and the prices paid for various parcels of share will differ.

Finally, since the shares were purchased (in your case transferred) before 1999, there is a second method for calculating capital gain, called the 'indexation' or 'index' method. I don't think this will be beneficial to you. But if you post the details of the shares, including the date of transfer to you husband, and if you were in the DRP, someone will be able to work it out for you.

Finally there are two very important documents for you to read and understand, you can download them from the ATO at Australian Taxation Office Homepage
NAT2632-06 You and Your Shares.pdf
and
NAT 4152-06 Personal investors guide to capital gains tax 2005-6.pdf

Yeah good point Rod - I had forgotten about DRP.