How to dispose of shares
You can dispose of your shares in the following ways:
- selling them
- giving them away (gifting shares)
- transferring them to a spouse as the result of a breakdown in your marriage or relationship
- through share buy-backs
- through mergers, takeovers and demergers
- because the company goes into liquidation.
It’s important you keep records of acquiring and disposing of shares.
Capital gains and losses when disposing of shares
You are likely to make either a capital gain or capital loss when you dispose of your shares. You must report the total current year capital gains, net capital losses carried forward to later income years and the net capital gain in the tax return for the income year you dispose of the shares.
You make a capital gain when your capital proceeds are more than your cost base (costs of acquiring, owning and disposing of shares). Your capital proceeds are either the:
- money you receive when you sell your shares
- value of the shares when you gift your shares.
You may be able to reduce your capital gain if you either:
- owned your shares for at least 12 months
- gifted them to a deductible gift recipient, provided both
- they are valued at less than $5,000
- you acquired them at least 12 months earlier.
If the capital proceeds are less than the cost base, you will need to work out the reduced cost base first. Then, if the reduced cost base is:
- more than the capital proceeds, the difference is a capital loss
- less than the capital proceeds, there is neither a capital gain nor a capital loss.
You also make a capital loss on your shareholding when an administrator or liquidator makes a written declaration that a company’s shares are worthless.
You are entitled to reduce your capital gains by capital losses, including any carry forward capital losses (apart from capital losses made in respect of personal use assets and collectables).
If you are carrying on a business of share trading and have losses on shares when you dispose of them, you may be able to claim the loss as a deduction in your tax return.
Shares you received as a gift
If you dispose of shares you received as a gift, you must use the shares’ market value on the day that you received them as the first element of your cost base when working out your capital gain or loss.
Shares you give as a gift
If you give shares away as a gift, treat the shares as if you disposed of them at their market value on the day you gave this gift. This means a capital gains tax (CGT) event occurs and you must include any capital gain or loss in your tax return for the income year you gave away the shares.
Example: gifting shares
On 4 January 2024, Mark bought shares at a cost of $45,000, including brokerage.
On 18 June 2024, Mark gifts all of these shares to his wife. The shares have a market value of $50,000 on 18 June 2024.
Since this gift is a CGT event, Mark needs to calculate his capital gain or capital loss for the 2023–24 income year. He must use $45,000 as the cost base of the shares and $50,000 (the market value of the shares on the day he gifted them) as the capital proceeds. Therefore, Mark makes a capital gain of $5,000. Since he did not own these shares for at least 12 months, he doesn’t qualify for a CGT discount of 50%. That is, Mark cannot reduce his capital gain of $5,000 by $2,500.
As he has no other CGT event, and no capital losses (in, or carried forward to, 2023–24), Mark enters the following at question 18 of the supplementary section in his 2024 tax return (paper tax return):
- $5,000 at label H (Total current year capital gains), and
- $5,000 at label A (Net capital gain). This means $5,000 of net capital gain gets added to his assessable income.
However, if Mark had owned the shares for at least 12 months before gifting them, he would have been allowed (to his advantage) to reduce his capital gain by 50%. Therefore, he would have entered the following at question 18 of the supplementary section in his 2024 tax return (paper tax return):
- $5,000 at label H (Total current year capital gains), and
- $2,500 at label A (Net capital gain). This means $2,500 of net capital gain gets added to his assessable income.
If you donate shares with a value of $5,000 or less to a deductible gift recipient (DGR), you may be able to claim a deduction.
The Personal investors guide to capital gains tax has more information and examples about gifting shares.
Bonus shares
If you dispose of bonus shares you received on or after 20 September 1985, you may:
- make a capital gain
- have to modify your existing shares’ cost base and reduced cost base in the company.
Any questions, speak to us.
Source: ato.gov.au June 2024
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/individuals-and-families/investments-and-assets/investing-in-shares/disposing-of-shares.
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