When you sell or gift your shares, you'll likely face either a capital gain or a capital loss. Understanding how these work is essential for your tax return, as you'll need to report all current year capital gains, any net capital losses carried forward, and your net capital gain for the income year in which you dispose of the shares.
Understanding Capital Gains on Shares
A capital gain occurs when the money you receive from selling your shares (or their value if you gift them) exceeds your cost base. Your cost base includes all costs associated with acquiring, owning, and disposing of the shares.
There are two main ways to reduce your capital gain:
- You owned the shares for at least 12 months, or
- You gifted them to a deductible gift recipient, provided they were valued at less than $5,000 and you acquired them at least 12 months earlier.
Working Out Capital Losses
If your capital proceeds fall short of your cost base, you'll need to calculate your reduced cost base first. Once you have this figure:
- If the reduced cost base is more than your capital proceeds, the difference is a capital loss.
- If the reduced cost base is less than your capital proceeds, you have neither a gain nor a loss.
You also incur a capital loss when an administrator or liquidator formally declares that a company's shares are worthless.
Using Capital Losses to Offset Gains
You can reduce your capital gains by applying capital losses, including any losses you've carried forward from previous years. This helps minimise your overall tax liability.
If you're carrying on a business of share trading and experience losses when disposing of shares, you may be able to claim the loss as a deduction in your tax return, rather than treating it solely as a capital loss.
Reporting Your Shares in Your Tax Return
When you complete your tax return for the year you dispose of shares, ensure you accurately report all capital gains, losses, and carry-forward amounts.
If you have any questions, please contact us for your detailed situation.
