Capital Gains

lindy0123 said:

My situation is the only income that my father in law earns is his war pension and income from shares. He as sold off some of his shares already and is unaware but soon to be educated on the joys of CGT. It will break his heart as we advised him not to sell this lot BUT some tax agent said he should and put the $$ into his super account. Not complaining yet BUT I am wanting to know if they are automatically passed on at the current value when inherited. If this is the case and the CGT is then calculated at the new value then the amount would be much better for my mother in law when she will need to use them / income to live. I am trying to find out before he runs off and sells the rest of his shares as he is not a well man. Any help would be great. Thanks,

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Personally I would just sell as many as regularly as they need for an income (say 500 every six months?). Then the benefit is you pay less in tax (may even slip under a tax threshold), and the shares continue to appreciate (do the shares pay dividends? Even better if so).

Re: the transfer, I think you can just do an off-market transfer to his wife, dunno about other family members as an inheritance ... possibly the same rule anyway? Not sure.

DionM said:

Personally I would just sell as many as regularly as they need for an income (say 500 every six months?). Then the benefit is you pay less in tax (may even slip under a tax threshold), and the shares continue to appreciate (do the shares pay dividends? Even better if so).

Re: the transfer, I think you can just do an off-market transfer to his wife, dunno about other family members as an inheritance ... possibly the same rule anyway? Not sure.

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Thanks DionM, Selling them off in small amounts doesn't really help as the dividends on the others still puts them in the highest tax bracket. BUT if he transfers them I am sure that there would be fees involved but do you have to pay CGT at the time of transfer ? Otherwise what is the difference with just selling them all off in one hit or in small amounts ? It would be great if he could transfer them to his wife pay a nominal fee and no CGT and she could live off the dividends....unless of course at that time she could reset the start price which it would then suit her more to sell off pay no or very little CGT. Any thoughts ?

Take a read of this.

In particular, note the part that says:

There is a special rule that allows any capital gain or capital loss made on a post-CGT asset to be disregarded if, when a person dies, an asset they owned passes:

* to their legal personal representative or to a beneficiary, or
* from their legal personal representative to a beneficiary.

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GP

lindy0123 said:

Thanks DionM, Selling them off in small amounts doesn't really help as the dividends on the others still puts them in the highest tax bracket. BUT if he transfers them I am sure that there would be fees involved but do you have to pay CGT at the time of transfer ? Otherwise what is the difference with just selling them all off in one hit or in small amounts ? It would be great if he could transfer them to his wife pay a nominal fee and no CGT and she could live off the dividends....unless of course at that time she could reset the start price which it would then suit her more to sell off pay no or very little CGT. Any thoughts ?

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Transferring the shares to the wife would constitute a "non at arms length transaction". CGT event A1 would occur and the market value substitution would kick in to deem the shares being disposed at market value.
If he held the shares longer than 12 months he will be entitled to 50% discount on the gain. If held pre 19 September 1985 they may be exempt from CGT all together.
Im pretty sure you could do some nice little tricks using super funds but i'd go see someone that is a INDIVIDUAL tax advisor.
I am a corporate tax advisor so I cant help you there.

lindy0123 said:

Thanks DionM, Selling them off in small amounts doesn't really help as the dividends on the others still puts them in the highest tax bracket. BUT if he transfers them I am sure that there would be fees involved but do you have to pay CGT at the time of transfer ? Otherwise what is the difference with just selling them all off in one hit or in small amounts ? It would be great if he could transfer them to his wife pay a nominal fee and no CGT and she could live off the dividends....unless of course at that time she could reset the start price which it would then suit her more to sell off pay no or very little CGT. Any thoughts ?

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It might be a bit late now,... But this is a good example of why buying investments in a family trust is a good long term stratergy.

If these shares where held in a family trust you could distrubute the dividends and capital gain on varying amounts to the family member with the lowest taxable income, so as soon as one member of the family reaches the a tax bracket higher than 30% you switch to another member and start distributing income to them, If all members of the family are in a tax bracket higher than 30% you can start to distribute the earnings into a company account where your tax rate is capped at 30%. the money in the company name can then be used to purchase further investments.

and the trust could continue to exist and hold the investments and distrubute income even after the original founders have passed away.