Selling shares and Capital Gains Tax
With Trump’s tariffs causing big sell downs on share markets around the world, it is important to understand a few key things about how capital gains (and capital losses) from the sale of shares are treated for CGT purposes in Australia.
For a start, it is crucial to know what the cost, or specifically the “cost base”, of the shares is in order to calculate the assessable capital gain (or loss). This cost base will include relevant brokerage fees. For shares received under a dividend reinvestment scheme (DRIP), the cost base will be the value of the dividend which has been applied to buy shares in the company.
Importantly, where only some of the shares in a parcel of shares are sold, it will be necessary to identify exactly which of those shares have been sold, particularly where you may have acquired the shares at different times for different costs. In this regard, usually some form of “identifier” (ASX or company, etc.) is attached to the shares.
But where it is not, the ATO allows you to choose which parcel of shares has been sold, provided you keep records of this so that there is no doubling-up or reselling of the same parcel of the same shares again later on. This may also allow you to choose which shares you sell in a tax-effective manner.
Of course, the CGT discount is available to reduce the amount of your assessable capital gain by 50% if you have owned the shares for 12 months, or 365 days to be precise. In an interesting bit of nitpicking, the ATO takes the view that this does not include the day on which you bought the shares and the day on which you sold them.
Another important thing to understand is how exactly you calculate your “net” capital gain for the income year that is to be included in your assessable income. The key thing to note here is that any capital losses of the taxpayer from either the immediate year or prior years must first be applied to any capital gains before applying the 50% CGT discount. This will usually mean there is a bigger net capital gain (if any) to be assessed, as opposed to if the discount was applied first.
However, where there is more than one capital gain from a particular source, the taxpayer can choose which capital gain to apply the capital loss against first. Usually, the best result is to apply the capital loss to a gain that is not eligible for the CGT discount. But where there are a number of capital gains and losses to be netted, this process can get complicated, and professional advice will be invaluable.
Finally, beware of engaging in “wash sales” in the current volatile market. This broadly occurs where you sell the shares to realise a capital loss and then buy them back soon after in order to obtain some tax advantage. The ATO treats wash sales as tax avoidance.
So, if you are selling shares, see us first so we can help you do so in the most tax-effective method relative to all your circumstances.
Questions about selling shares and CGT?
Selling shares in a volatile market can have significant tax consequences if the CGT rules aren’t applied correctly. Cost base calculations, parcel selection, capital losses, CGT discounts, and wash sale rules all play a role in determining your final tax position.
Before you sell shares or lodge your tax return, speak with us. We can help you structure disposals in a tax-effective way, avoid costly mistakes, and ensure your capital gains and losses are reported correctly based on your broader financial circumstances.
For practical and professional guidance across superannuation, accounting, taxation, business advisory and financial planning, contact Stratogen Accounting. Based in Noosa, our experienced team of accountants and business advisors support clients throughout the Sunshine Coast and Australia-wide. From tax compliance and bookkeeping to strategic planning, risk management and long-term wealth creation, Stratogen is here to strengthen your financial position and support your success.