Disposing of shares

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.
Important:
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.