stop losses and a bit of panic, page-41

From the ATO

Identifying when shares or units were acquired

You may own shares or units that you acquired at different times. This can happen if you decide to increase your investment in a particular company or unit trust.

Also, since the original purchase of the particular investment, you may have decided to sell part of your holding.

A common question people ask when they dispose of only part of their investment is – ‘How do I identify the particular shares or units I have disposed of’.

This can be very important because shares or units bought at different times may have different amounts included in their cost. Also, when you dispose of any shares or units you acquired before 20 September 1985, any capital gain or capital loss you make is generally disregarded.

Therefore, in calculating the capital gain or capital loss when disposing of only part of an investment in shares or units, you need to be able to identify which ones you have disposed of.

If you have the relevant records (for example, share certificates), you may be able to identify which particular shares or units you have disposed of. In other cases, the Commissioner of Taxation will accept your selection of the identity of shares disposed of.

Alternatively, you may wish to use a 'first in, first out' basis where you treat the first shares or units you bought as being the first you disposed of.

In limited circumstances, the Tax Office will also accept an average cost method to determine the cost of the shares disposed of. This average cost method can be used only when:

the shares are in the same company
the shares are acquired on the same day
the shares have identical rights and obligations, and
you are not required to use market value for cost base purposes.
Example

Identifying when shares or units were acquired

Boris bought 1,000 shares in WOA Ltd on 1 July 1997. He bought another 3,000 shares in the company on 1 July 2002.