# Identifying specific parcel of shares being sold



## Tyche

When I hold several parcels of shares in a particular company - bought at different times and at different prices - I have always chosen which parcel to sell based on maximising my return.   I have not used FIFO or LIFO.

Enter new accountant who says I must use FIFO as I am not able to identify the specific parcel being sold (i.e. I am no longer returning a certificate).   He says the ATO go by the Chess Statement which does not identify specific parcels.

I say I sold e.g. 4000 of the 5000 ABC Co. shares which I purchased on 23rd October 2009 via contract #12345 with Westpac Broking at a cost of $3.78 each plus $24.95 brokerage giving me a cost for the 2000 I'm selling of $7569.98.   That strikes me as pretty solid identification.

I have found the following in the GUIDE TO CAPITAL GAINS TAX 2006   (page37)

_"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...." _

I have found nothing further in subsequent GUIDES to CGT, but am weary of searching.   

From the above it would seem to me that I am well able to identify the particular shares I am selling, but the Guide continues with an example of "Boris" who 

_"....bought 1,000 shares in WOA Ltd on 1 July 1997. He bought another 3,000 shares in the company on 1 July 2002.
In December 2002, WOA Ltd issued Boris with a CHESS statement for his 4,000 shares. When he sold 1,500 of the shares on 1 January 2006, he was not sure whether they were the shares he bought in 2002 or whether they included the shares bought in 1997.
Because Boris could not identify when he bought the particular shares he sold, he decided to use the ‘first in, first out’ method and nominated the 1,000 shares bought in 1997 plus 500 of the shares bought in 2002._"

What do they mean "_Boris could not identify when he bought the particular shares he sold"   " ...nominated the 1,000 shares bought in 1997_"   To calculate the capital gains tax owed he must know the date of purchase and the cost, and if that doesn't identify each parcel owned - what does?

If I accept the accountant's interpretation, I should contact the ATO and advise them that I am adjusting my tax returns (personal, discretionary trust and SMSF) going back (how many?) years.   Not only does the Capital gains tax payable alter drastically if FIFO is applied, but all dividends will need to be reexamined in the light of the 45 day rule disallowing imputation credits.   I'll often buy an extra parcel to ride the run up to dividend and sell on the last day cum div.   I'm certainly not going to sell before exdiv day a parcel I've held longterm which is entitled to the imputation credits when I've bought a parcel specifically for the short term gain and am selling it cum div. 

Have there been changes since the 2006 Guide?

Can anyone make sense of Boris's inability to identify the particular shares he sold, and why he could not as well have nominated the 1500 shares as being from his 2002 purchase?

Any one able to shed some light???


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## Wysiwyg

Mate as far as I know and do, you can use the following options (complete with example) :-



> *EXAMPLE:*
> 
> John Smith is disposing of 3500 shares in "ZZZ", these are held in two separate purchases of 5000 shares each.
> 
> Stator can allocate the 3500 shares to the parcels as specified by the allocation method.
> 
> 1.  *Oldest to Newest*
> 
> Stator will allocate the 3500 shares to the oldest parcel.
> 
> 2.  *Newest to Oldest*
> 
> Stator will allocate the 3500 shares to the newest parcel.
> 
> 3.  *Pro Rata*
> 
> Stator will allocate 1750 shares to each parcel as this is based upon a pro rata formula.
> 
> 4.  *Custom*
> 
> You can nominate which parcel will be allocated the 3500 first. This is most powerful when you have multiple parcels and you can find the most tax effective way to dispose of your trade.


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## Tyche

OK - as the light of day slowly fades, the light of comprehension rises.

Boris did not instruct his broker to "sell the 1,000 shares bought in 1997 plus 500 of the shares bought in 2002",  or to "sell the 2,000 of the 3,000 shares bought in 2002" - he simply instructed his broker to sell 2000 shares.   _"Boris could not identify when he bought the particular shares he sold"_ because there is no longer a facility to identify what shares (by purchase date) you are selling (as opposed to the good old  days when a share certificate would accompany the order to sell).   His broker makes no distinction - he simply sells the required number of shares.   

Then Boris must decide which shares he sold in order to calculate capital gains tax and imputation credits due.    _"...he decided to use the ‘first in, first out’ method" _   He could have equally justifiably chosen to use either  Last In First Out, Pro rata or custom - he chose FIFO, but whatever choice is made 
"_the Commissioner of Taxation will accept your selection of the identity of shares disposed of_"

Back to the new accountant....


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## So_Cynical

Tyche said:


> When I hold several parcels of shares in a particular company - bought at different times and at different prices - I have always chosen which parcel to sell based on maximising my return.   I have not used FIFO or LIFO.
> 
> Enter new accountant who says I must use FIFO as I am not able to identify the specific parcel being sold




Sounds like you need a new - new accountant ...we have had this discussion a few times on this forum and im sure the outcome was you can choose the parcel or part parcel u sell.


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## Julia

I agree with So Cynical.
And I'd be finding an alternative accountant.


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## DocK

My accountant simply requires that I keep accurate records of purchase date, amount, brokerage etc giving complete cost basis, and same for any sale.  If multiple holdings are held his advice is that provided I can identify via my records (excel spreadsheet) which parcel/s I have sold, it is entirely my decision as to whether it was the parcel purchased first, last, or some of each.


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## Tyche

I keep all such records - spreadsheets backed up by Quickbooks, and a printoff of the contract history from the broker, showing contract number, date of purchase/sale and price, brokerage etc..   His point is that when placing the order to sell, I don't designate to my broker which parcel  I am selling.

His email this morning:

"_I reiterate our discussion on Friday regarding the issue of FIFO. Your records are insufficient to satisfy the ATO. Your records will allow you to change the outcome to best suit depending on the outcome of the transactions. It is not set in concrete at the time of the transaction by independent verification. That is, you can change your position at a whim. The current CHESS system does not allow you to set the transaction in concrete as far as I am aware. Perhaps if you had a broker that you specifically designated the transactions and confirmed by email this MAY suffice_."

Meanwhile I have a $4,257 bill, an audit I disagree with, and a Tax return I will not sign.


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## DocK

Have you considered a phone call to the ATO?  I have found them reasonably helpful in the past when dealing with an Estate.  Alternatively, I'd be getting a "second opinion" from another accountant - you may well save more than it costs!


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## Wysiwyg

It can't be any simpler than this explanation. Follow the rules and there is no problem. 

http://www.ato.gov.au/individuals/c...001/002/026/017/009&mnu=5060&mfp=001&st=&cy=1


> 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’.
> 
> 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 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.


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## Tyche

docK - on the phone waiting as I type, though I'm expecting them to simply quote "_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_."   


Wysiwyg - followed all the rules, problem is my new accountant.   I've replied to his email (reproduced above):



> You say "The current CHESS system does not allow you to set the transaction in concrete as far as I am aware".   I agree entirely, and the ATO acknowledges this in ruling that:
> 
> "In other cases (ie no share certificate or other identifier accompanying order to sell) 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."
> 
> "You may wish" - not "you must."
> 
> 
> I disagree that my records are insufficient to satisfy the ATO.   My records are broker contract notes dated and showing cost of purchase.   No broker is interested in which parcel I am selling and your suggestion that I find a broker to whom I specifically designated the transactions and requested that they confirm by email  is.....you're not serious, are you?.  When presented with these I believe the Commissioner of Taxation will accept my selection of the identity of the shares disposed of.
> 
> Further, every accountant and auditor I have dealt with since the inception of CHESS has agreed with the interpretation.   When I put the question to a a few shareholder forums over the weekend, there was unanimous agreement with my interpretation.   You are, in fact the first person I've come across to interpret it this way.
> 
> So where to from here?   I believe you are wrong, and without confirmation from the ATO I will continue to submit returns as I have done for myself, a discretionary trust, and the beneficiaries of that trust since the inception of CHESS.   Must I now engage another auditor in order to get the certification required to submit my tax return, or must I wait until you report the fund to the ATO and they rule upon it?


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## 3134316

Hey mate, so how did the accountant take that one? 



Tyche said:


> docK - on the phone waiting as I type, though I'm expecting them to simply quote "_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_."
> 
> 
> Wysiwyg - followed all the rules, problem is my new accountant.   I've replied to his email (reproduced above):


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## The Barbarian Investor

What was the end result here?


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