The Capital Gains Report calculates capital gains made on shares as per Australian Tax Office rules. The report is based on the ‘discount method’ for shares that were held for less than 1 year and the ‘other method’ for shares held for more than one year. The discount rate used can be set via the settings menu for each portfolio (the default rate is 50%). The report may be run over any date range.
For more detail about Australian Capital Gains tax rules, please refer to the ATO website here:
http://www.ato.gov.au/corporate/pathway.aspx?pc=001/001/038
Before you run the capital gains report for the first time, you must set the sale allocation method. You can do this on a per share basis but you must ensure the same method is used throughout the period of ownership of a particular share. If you switch to a different method, the number provided by the report will not be correct for tax purposes. This means that if you record existing shareholdings into Sharesight you must select the same sale allocation method as used previously if partial sales of that shareholding have occurred.
If you are entering a share into Sharesight that does not have any previous sale trades associated with it, we recommend that you set the sale allocation method for this share to ‘Sharesight Minimisation’ because this method will record sales in a way that minimises your taxable gain. (The Sharesight minimisation method takes the discounting rules into account).
To calculate capital gains Sharesight allows you to choose one of the following sale allocation methods:
First in, first out –Sharesight assumes that you sell your longest held shares first.
First in, last out –Sharesight assumes that you sell your most recently purchased shares first.
Minimise capital gain –Sharesight assumes that you sell shares with the highest purchase price first.
Maximise capital gain –Sharesight assumes that you sell shares with the lowest purchase price first.
Sharesight minimisation –Sharesight assumes that you sell shares that will result in the lowest capital gains tax first. This method is more sophisticated than the ‘Minimise capital gain’ method because it takes into account the discounting rules.
The following information is taken from the ATO website, and provides important information on the sale allocation method.
To calculate 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. This can be very important because shares or units bought at different times may have different amounts included in their cost and can alter the amount of tax you may need to pay.
You may own shares or units that you acquired at different times, which happens if you increase your investment in a particular company or unit trust and these may need to be treated in different ways. For example, 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.
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 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.
The date range selector allows you to choose the date range over which you wish to run the report.
This table lists capital gains that have been made during the period on shares held for less than 12 months. Note that quantities and cost bases are adjusted by Sharesight to allow for any capital returns and capital reconstructions.
This table lists any capital gains during the selected period on shares held for more than 12 months. Note that quantities and cost bases will be adjusted by Sharesight to allow for any capital returns and capital reconstructions. Shares purchased prior to 20 September 1985 are not subject to CGT and therefore excluded from the report.
This table lists any capital losses during the period. Note that quantities and cost bases will be adjusted by Sharesight to allow for any capital returns and capital reconstructions.
This summary section details the taxable income calculation for the period. The following methodology is used to calculate taxable income:
Note1: Returns of capital give rise to a capital gain where the amount of the capital returned exceeds the cost base of the share, or where the shares to which the return of capital relates are sold before the return of capital is received. In either of these cases an ‘unallocated capital return’ is added to either the capital gain on shares held for less than 12 months or the capital gain on shares held for more than 12 months as appropriate. Please see here for a worked example: http://www.ato.gov.au/individuals/content.asp?doc=/content/61358.htm&page=5&H5
Note2: Sharesight does not account for any capital losses in previous tax years. Capital losses to be carried forward must be accounted for manually.