Buying / Selling Shares

How capital gains tax affects shares and units

For CGT purposes, shares in a company or units in a unit trust are treated in the same way as any other CGT assets.

As a general rule, if you acquire any shares or units on or after 20 September 1985, you may have to pay tax on any capital gain you make when a CGT event happens to them. This would usually be when you sell or otherwise dispose of them. It also includes where you redeem units in a managed fund by switching them from one fund to another. In this case, CGT event A1 happens.

Profits on the sale of shares held in carrying on a business of share trading are included as ordinary income rather than as capital gains.

A CGT event might happen to shares even if a change in their ownership is involuntary – for example, if the company in which you hold shares is taken over or merges with another company. This may result in a capital gain or capital loss.

A CGT event also occurs if you:

• receive non-assessable payments from a company;

• receive non-assessable payments from a trust; or

• own shares in a company that has been placed in liquidation or administration and the liquidator or administrator has declared the shares (or other financial instruments) worthless.

There are a number of special CGT rules if you receive from a company or trust such things as:

• bonus shares;

• bonus units;

• rights or options to acquire shares or units; or

• non-assessable payments.

Special rules also apply if you buy convertible notes or participate in an employee share scheme or a dividend reinvestment plan.