CGT calculation question

Discussion in 'Accounting & Tax' started by scientist, 3rd Jun, 2019.

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  1. scientist

    scientist Well-Known Member

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    If I sell a mixture of shares, some having a cap gain and some having a cap loss, some held over a year and some held less than a year, how is CGT calculated?

    e.g.

    I sell 1000 MLT at 4.56 (cost base 4.61) and held this less than a year, the cap loss is 0.05*1000=$50

    I sell 100 VAS at 81 (cost base 76) and held this for more than a year, cap gain here is 5*100=$500. CGT 50% discount applies so the assessable CG is 500/2 = 250

    So is my net CG in this scenario 250-50=200?
     
  2. SatayKing

    SatayKing Well-Known Member

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    I understand you need to deduct the loss before you apply the CGT discount. Best check with a professional though.
     
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  3. scientist

    scientist Well-Known Member

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    Yes that's possible but then how could you justify that the net CG is made of a mixture of assets held longer / shorter than a year?
     
  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Summarise into three groups
    • Discounted gains = A
    • Non-discounted gains = B
    • Losses = C
    Gains are reduced by current year losses first.
    Then prior year losses

    Then...any discount is applied.

    So $500-$50 = $450
    $450 / 2 = $225 is the taxable gain

    Note : VAS may have been affected by 2018 or 2019 distributions of AMIT / Tax Deferred elements of income. This may not be known until after July when the annual tax statement (2019) is provided. These parts of income reduce the cost base and affect CGT calcs. There also may be a CGT element to income.
     
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  5. scientist

    scientist Well-Known Member

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    Thanks Paul

    So in this case, the MLT was held for less than a year but VAS was held for more than a year - why are the gains and losses offset before applying the discount?

    What about a more extreme scenario. I have $1 in gain (held more than a year) and $99 in gain (held less than a year) and $50 in losses. Then is it worked out as (1+99-50)/2 = 25?
     
  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Tax law sets out the formula. Its not any different to assessable income less deductions = assessable income. Gains minus prior year or current year losses = net gains. The formula is represented in a schedule format that some taxpayers must also complete and lodge.

    https://www.ato.gov.au/uploadedFiles/Content/IND/downloads/Capital-gains-tax-schedule-2018.pdf

    So section 1 reprts current year (CY) gains and losses. Section 2 applies the CY or PY losses to reduce the gain. The resulting gain must be considered to determine where any discount applies - Item 4.

    NET gains are eligible for a CGT discount to the extent any net gain is a discount gain. Note that tax law doesnt prescribe allocation of losses to discount gains first. A wise taxpayer would apply non-discount gains first then the balance is discount gains. I have seen taxpayers choose the wrong one. I have also seen taxpayers include exempt gains (ie main residence) before applying discounts.

    Your example : I have $1 in gain (held more than a year) and $99 in gain (held less than a year) and $50 in losses. Then is it worked out as (1+99-50)/2 = 25?
    No. The correct answer is (1+99)-50 = 50

    The halving of the $1 long term gain is not relevant since half of 1 is rounded to zero. (Cents are ignored in all tax forms)

    In the above calculation the total value of 50 is not divided by two since the net gain is $50 and represents short term gains
     
    Last edited: 3rd Jun, 2019
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  7. scientist

    scientist Well-Known Member

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    Thanks again.

    So to clarify, if we just keep the same example but multiply everything by 100 so we don't lose to rounding, we have:

    $100 gain (held more than a year) and $9900 gain (held less than a year) and $5000 losses (held less than a year) therefore the CG is (9900+100/2) - 5000 = 4950?
     
  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    9900 + 100 = 10,000 Less losses 5000
    Losses of 5000 is applied as $100 (first) non-discount and $4900 discount

    So after losses is 5000 disc gain = 5000
    Less Discount (2500)
    Taxable Gain is $2500
     
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  9. scientist

    scientist Well-Known Member

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    Thank you Paul
     
  10. Trainee

    Trainee Well-Known Member

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    ?
     
  11. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    aHHH YES...Well picked trainee.

    9900 + 100 = 10,000 Less losses 5000
    Losses of 5000 is applied as $5000 (first) non-discount and $0 discount

    So after losses is 4900 non-disc + $100 disc = $5000
    Less Discount ($50)
    Taxable Gain is $4950
     
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  12. scientist

    scientist Well-Known Member

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    doubly fantastic thanks
     

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