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_jsxsydney(Newbie)Newbie
23 Mar 2021

Hi All,

If A and D are incorrect below, please explain why.

I have $5 capital at start of current financial year.

I have 0 of XYZ shares and I then buy 5 of XYZ shares for $1 each in current financial year. $0 brokerage fee for simplicity. Total cost: $5

At end of current financial year XYZ shares rose to $2.5 a share.

I sell 2 of XYZ shares and get $5 capital in current financial year. $0 brokerage fee for simplicity.

I have exactly $5 capital at end of current financial year = what I had in capital at start of current financial year.

Question:

How much CG did I make in current financial year if the above are the only Capital events?

A) $0. I have exactly $5 at start and end of current financial year, made $0 capital gain. However any XYZ shares I sell in future financial years (even if the shares decrease to $0.001) will be reported as capital gains and subjected to CGT.

B) $3. I originally bought 2 of XYZ shares for $1. (Sell event: 2 x $2.5 = $5) - (Buy event: 2 X $1 = $2) = $3. Future financial years are calculated the same way (sell price x unit - buy price x unit).

C) $5. Sale of my 2 XYZ shares this financial year gave me $5 capital. Future financial years are accounted for in the same way. NOTE: I'm thinking this is definitely incorrect answer but including for completeness.

D) Both A and B are correct as long as future years are accounted for accordingly per A/B correspondingly.

961 views
3 replies
961 views
3 replies

Most helpful response

Most helpful reply

BlakeATO(Community Support)Community Support
24 Mar 2021

Hi @jsxsydney

Each share is its own capital asset. This means that you bought shares for $1 each, and sold them for $2.50 each. Assuming no other cost base elements come into it, that means each asset has a capital gain of $1.50. If you disposed of two, that means you've made $3.

The 12 months @LeeKD has referred to is taken from the discount method of working out your capital gain. There are other eligibility criteria you'll need to meet, but the 12-month holding rule is one of them. It starts from the date you acquire the share, not the financial year. If you purchased the share on 12 December 2019, you would have to hold it until 12 December 2020 to be able to use the discount method.

The discount method calculation is: (capital proceeds - cost base - capital losses) x discount percentage. For your example, this means ($2.50 - $1 - [any capital losses]) x 50%. You then report only the final amount on your return. You apply this to each CGT event.

You can read more about the discount method and how to work it out on our website.

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LeeKD(Champion)Champion
23 Mar 2021

B. You bought 5 shares for $5. You sold two of those shares for $2.50 each.

You bought 2 shares for $2. You sold 2 shares for $5.00. Assuming that you sold these shares within 12 months of purchase, your capital gain will be $3.

If you sold the shares 12 months or more after purchase your CGT will be $3/2 = $1.50.

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