# Calculating the Cost base for CGT



## mgiles (30 July 2010)

Hi All,

I have searched around the place, including here the ATO and everyones friend google and cannot find a definitive/clear answer to this anywhere.

I am trying to workout/understand the effect of calculating the cost base when selling shares that either isn't a complete parcel or is a qty of shares which spans two parcels of purchased shares.

The calculation is easy if you are just buying say 1000 shares and then selling the 1000 again but if you don't sell all 1000 the information on how to apply the purchasing costs to the cost base is a bit sparse.

Consider the following scenario of selling shares spanning two different parcels 

Purchased:
1000 XYZ Shares @ $2.50 ($25 Brokerage)
1500 XYZ Shares @ $3.50 ($35 Brokerage)

Sell:
1750 XYZ Shares @ $4.25 ($35 Brokerage)

My question is how does the brokerage get applied to the cost base?

Obviously there is $25 for the first 1000 shares, leaving 750 shares left in the CGT event. There was $35 brokerage on the second 1500 share parcel. 

Does this mean that you would include $60 in the cost base calculation? 
*Or* 
Do you apportion the brokerage to each share (ie: individual asset) that being for the first 1000 it would be $25/1000 shares = 2.5c per share & for the remaining 750 it would be $35/1500 = 2.33c per share. 

Which therefore would see you arrive at the following purchasing cost.
1000 x 2.5 = 2500c ($25)
750 x 2.33 = 1747.5c ($17.48 rounded to 2 decimals)
Totaling: $42.48

If the brokerage doesn't get apportioned as above then are there rules regarding claiming the brokerage once or can the $35 be claimed again when selling the remaining 750 shares?

Any clarification would be great.

Cheers,

Mark


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## So_Cynical (30 July 2010)

I apply the total sell cost and pro rata the buy...i have no idea if this is the correct way to do it.


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## pixel (30 July 2010)

Hi Mark,

IMO you would definitely pro-rate the brokerage across the shares.
If you're a trader, meaning there is no issue with time of purchase, you can simply add the costs and divide the total by number of shares. In your example that would make
$2525 for the first lot ($2500 for the shares plus $25 brokerage)
$5285 for the second lot, which gives 
$7810 for your 2500 shares after the second purchase.

You then sell 1750 @ $4.25 - $35 brokerage, which nets you $7402.50.
Those 1750 shares have cost you ($7810/2500)*1750 = $5467, 
meaning your CGT profit is *$1935.50*
and you're left with 750 shares at $2343 cost.

If you want to make it more complicated - which could work in your favour if you're treated as an "investor", who can apply the 12-month rule - you can do the following.
Sale 1: Sell the 1000 shares of the first lot, applying a pro-rata of the second brokerage ($35/1750)*1000 = $20. 
So you have a CGT event selling 1000 shares @ $4.25 = $4250 minus $20 pro-rated brokerage.
$4230 - $2525 = $1705 profit. 
If you're lucky and held the shares for more than a year, you can reduce the CGT on that amount.

Sale 2: The 750 sold @ $4.25 pay $3187.50 - $15 pro-rated brokerage = $3172.50
They've cost you half of the second lot = $2642.50, CGT profit = $530
In this case, your remaining 750 shares carry a $2642.50 cost base.

All clear?


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## drsmith (30 July 2010)

I generally apportion the brokerage and calculate on the basis of selling the most expensive shares to achieve the highest cost base (lowest capital gain) on the shares sold.



> Purchased:
> 1000 XYZ Shares @ $2.50 ($25 Brokerage)
> 1500 XYZ Shares @ $3.50 ($35 Brokerage)
> 
> ...



Sold with cost base calculated as follows (cost of shares + purchase brokerage + sale brokerage):
1500x$3.50 + $35 + $35x1500/1750 (parcel 1) + 250x$2.50 + $25x250/1000 + $35x250/1750 (parcel 2).

Retained with cost base calculated as follows (cost of shares + purchase brokerage): 
750x$2.50 + $25x750/1000 (parcel 3).

I use Excel templates for CGT events. Where it gets really messy is with deducting tax deferred components of distributions on units in LPT's.

The following from the ATO contains information on CGT on shares though not specific to the above as noted by the author of the thread.

http://www.ato.gov.au/content/downloads/IND00237980n41520610.pdf


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## mgiles (31 July 2010)

Thanks for your replies. The pro rata approach is how I figured it would work.

You've both calculated it differently and it looks like you have flexibility on how you approach it in order to minimise tax.

From everyones experience is it generally a case of as long as you can prove/justify how you calculated it you can use just about any method you like?

Cheers,

Mark


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## pixel (31 July 2010)

mgiles said:


> Thanks for your replies. The pro rata approach is how I figured it would work.
> 
> You've both calculated it differently and it looks like you have flexibility on how you approach it in order to minimise tax.
> 
> ...




You have to be consistent. That means, you cannot apply one method for the first lot and another one for the second. But as long as you maintain consistent records, you're free to sell the shares you like.
(That is if you are an investor. If you apply Trader rules, it's immaterial because there is no time aspect to consider.)


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