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Tax Tips Carolyn Wheeler: Shares and Capital Gains


I have spoken before on this subject but during this tax season I feel that I need to ensure clients have full information available when they sell their shares.

Shares can be owned any number of ways – purchased through a broker, via online bank trading, left to beneficiaries through a will, or transferred from a trust fund set up when they were younger.

The valuation of the cost price for these various situations is quite different. Purchasing them outright is obviously the money you paid for them, the same for online trading. Being left shares under a will distribution can be calculated either of 2 ways. If the original owner purchased them before capital gains tax came in (28.09.85), then the share value is the market value or sale price for up to 2 years from date of death. More than 2 years and the shares revert to market value at date of death. If the shares were purchased by the deceased after capital gains started, then the cost and date of purchase is deemed the same as for the original owner.

Receiving share via a trust fund is similar.

Sometimes shares are purchased through Dividend Reinvestment wherein the dividend received is used to purchase further shares. The cost of these new shares will generally be the same as the franked amount received converted into the purchase. A copy of all the dividend reinvestment statements must be kept for assisting in the calculations together with the Buy contract for any initial purchase.

Maintaining documentation for cost price is critical in determining the capital gain. The difference between the cost price and the sale price is the capital gain and if the shares are held over 12 months, then possibly a 50% discount on the gain is available.

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