How to calculate capital gains tax when you sell your shares

Your capital gain for a share is worked out like this:

• Deduct the cost base from the sale proceeds. The cost base is the price you paid for the share, plus incidental costs.

• Next, take away any capital losses.

Then, discount the gain if you’re eligible. Individuals are entitled to a 50% discount, though the asset must have been held for 12 months or more for the discount to be available.

• The resulting figure is your net capital gain, which is subject to tax at your marginal income tax rate.

Sometimes the proceeds and cost base of the share are not what was actually paid and/or received, but rather the market value of the asset.

This is typically to prevent people from minimising their tax by, say, selling the share to a relative for a low price. When you make a loss If your sale proceeds are less than your cost base, you will make a capital loss.

Losses can be offset against capital gains arising in the same year and, to the extent they are not used up, they can be carried forward indefinitely until capital gains arise to absorb them. interest and no cashback scenario – could be better in the long term, some savvy home loan owners refinance their loan every three to four years, or when they are eligible to switch without penalties, which means they still get the advantage of the cashback offer. Either way, don’t leave money on the table.

Capital losses can only be offset against capital gains –they can’t be offset against any other form of income.

If you dispose of an asset during the year for a capital gain, you might want to consider disposing of any other assets that are sitting at a loss, so the capital loss can be offset against the capital gain.

You only stick with it for as long as it works.

When you find a better option that suits your needs, switch.

TOM WATSON

Be careful, though, if you sell loss-making shares to crystallise a capital gain just before the end of the tax year and then buy the shares back again at the start of the new tax year.

The Australian Taxation Office generally regards this as an artificial contrivance or deliberate tactic to generate capital losses.

MARK CHAPMAN, H&R BLOCK