Q: Brenda and Derek, Australian residents, sold their real estate investment in April 1997, which they bought in 1965 for $2 million. They split the proceeds equally and invested in shares on 11 November 1997:
Brenda bought shares in her name:
Derek used his company to acquire shares:
In September 2016, they decided to sell these shares:
Here's the advice on the Capital Gains Tax (CGT) consequences of their share sales:
The sale of investments can lead to tax liability, but merely selling an investment doesn't always trigger tax.
When you buy and sell shares acquired after 19 September 1985, CGT applies. Any gain from the sale adds to your taxable income, while losses can be carried forward to offset future gains.
For assets acquired before 21 September 1999 and sold at least one year later, you could index the cost base to reduce the capital gain. For assets acquired after 21 September 1999, you can discount the taxable capital gain by 50%. Assets acquired before 21 September 1999 and disposed of at least one year later fall under both rules, allowing you to choose.
Brenda had the option to apply the 50% discount or indexation as she acquired shares before 21 September 1999 and held them for over 18 years. Derek, as his company acquired the shares, could only use the indexed cost base.
It's important to note that any capital losses are offset against capital gains before applying the discount percentages.
Calculations:
For Brenda:
Applying the 50% discount:
Using the indexed cost base:
For Derek:
Conclusion:
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