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Nah ... lets refer Lance to the ATO??? Honestly Lance I really do not think that the ATO has the time nor personnel to answer and questions on any subject other than the GST right now. Any even on this they can't get the facts right!

>>CGT on shares held over 12 months is taxed at marginal tax rate divided by 2 or it is indexed, take your pick.<<

You have to hold assets for a term longer than 12 months to be a capital asset. If you trade in any asset within a 12 month period it is deemed assessable income - not capital gains.

The old method of dealing with CGT (prior to introduction of the new legislation on Oct 19, 1999 (?) is that all capital gains (net of capital losses) were treated as income and subject to indexation. Therefore if you acquired BHP shares at AUD12 say 5 years ago and sold them today for say AUD18 then you have made a AUD6 'gross' capital gain. However the acquisition price is subject to indexation at the CPI rates over the past 5 years. Say indexed the 'net' capital gain is AUD3, then you have to pay the tax on the AUD3 at current marginal rates (if you are in the 34% tax bracket than at 34% - 48% then at 48% etcetera). Note that the assessable income plus net capital gains is the total that levies are applied too, so the minimalist approach is not to earn any assessible income in the year that large capital gains are to be made.

Since Oct 1999 you have too choices, that is the old way or the new way. The new way based on the same example of BHP shares is that the Capital Gains is an amount of AUD6. This is then subject to marginal tax rate on assessable income divided by 2! The effect is that only half of the capital gains are added to your assessable income. Your tax rate stays flat after the assessable income so you pay half of the tax rate on the capital gains. Does that make sense?

All tax accountants worth their salt will work out both methods and apply that method which has the least amount of tax applicable to their clients. I know a lot of accountants who do not know the Act has changed so good luck!

Any capital losses can only be offset against future capital gains. Capital losses cannot be offset against assessable income. Therefore if during the year you made a loss on ABD shares of say $25000 but a capital profit on BHP shares of $20000 then no capital gains tax is payable and you can carry the carried forward loss of $5000 forward until you have a capital gain that can write thsi amount off.

If however you have a $20000 capital loss on ABD and a capital gain of $25000 on BHP then the difference of $5000 is subject to Capital Gians Tax.

Now on the difference that is subject to CGT; under the old method; you have to index both lot of shares and ascertain what the 'indexed' cost base is on each share and subtract these figures to ascertain the 'net' capital gain for taxation purposes. Under the new method the Capital Gain is $5,000. And if you are on the marginal rate on assessable income of 48% the capital gains tax is applied at the rate of 24.5%.

I hope this makes sense! Does this answer your question/

And I thought I had problems with my lecturers... I only realise now that they have a problem with understanding me!


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