Australian CGT calculator? Partial sale of shares.

[misterhorsey]

Hello there

Just wondering if anyone has come up with a easy or at least straightforward way of calculating CGT on share sales, and most important, partial sales of shares?

It's kind of doing my head in.

I am contemplating moving my direct share investments to Vanguard ETFs or Life Strategy Funds (as detailed in another thread), but thought I'd do some administrative ground work first. To be honest, my inability to calculate CGT on partial share sales has resulted in me not selling out of some share holdings I have - this has actually resulted in both disastrous and wonderful consequences!

Lifestrategy will do all the calculations in house, but If I move to ETFs, this will continue to be an issue/problem/absorbing challenge.

But I'd like to sell down some of my holdings but for those that have done well, I'd like to keep a bit of a holding.  I.e. If a share has gone up 100%, I'll sell half of it to put into indexes but as the share has paid for itself, I'll retain the remaining half in the company.

I have prepared some personalised excel spreadsheets for each holding I own. I'm thinking of building the calculation into that but would love to see anyone else's handiwork if they care to share it.

Just in case it might help other people, I've attached one of these spreadsheets for one of my (least successful) shareholdings, AMP. 

For the benefit of Americans (and others) reading this thread, some context. The key to Australian CGT is that:
- it doesn't apply to assets bought prior to 1985 (not relevant to me, but certainly is for some)
- if you hold an asset for longer than 12 months, the government gives you a 50% discount on any CGT payable.
- Any profit on a capital gain is added to your income and taxed at your marginal tax rate (your personal income tax rate that increases on a sliding scale)
- Any capital losses in a given year can be offset against capital gains in that same year, or can be held indefinitely to offset against future gains.  (I have capital losses that I've held onto since 2003, which have the same nominal value but obviously eroded in real value due to inflation!)

Just a note on my AMP investment.  Again, for American readers, AMP was a mutual life insurance which was demutalised and floated and is now a large insurance and financial services company.  It hasn't performed very well. A few lessons learnt. 
- Just because a company has a share price of $20 doesn't mean its a bargain at $11!
- Just because a company drops down to $11 doesn't mean its going to rebound and it may well go down to $3.50, which it did!
- After holding a stock for 12 years, 10 years of terrible performance can be made up by 2 good years.
- Holding a stock for 12 years with a return of about 50% (including dividends) is a pretty miserable return given the risk.  Cash would have performed the same. Indexes would have done a lot better!
- Steady dividends really can soften the blow of poor share price performance. Australian dividends often include a substantial tax credit (the company has already paid company tax @30% so you get effectively a rebate) so it can be somewhat tax effective. My table doesn't take into account the tax impact of 'franked' dividends when calculating a return.  Its too complicated for this History major.

Anyway, thought I've give a little context above for a bit of fun. Look forward to any comments, suggestions.

Its a long weekend public holiday in Vic. Trying to get my house in order!

[deborah]

My excel says it is corrupt, but it scans ok. Excel needed to fix it - and it lost all the labels - did you use a normal font?

[misterhorsey]

Oh sorry. Computer issues.

It was a google 'sheets' spreadsheet, but I'm running a mac and don't have excel installed so it used the default mac application 'Numbers' to save it as an excel. Which probably corrupted it.

I've converted to excel straight from google. Perhaps try this one?

Another thing I just remembered. Any purchases of new shares via a DRP are counted as new aquisitions with new cost base etc.  I don't think I have this problem personally as I've opted out of most DRPs. But not sure how these are treated should you make a partial sale of a stock holding in which you've also being acquiring news shares via a DRP. Headaches.

[marty998]

Ok for the initial 420 parcel you have the capital returns but I believe you're missing the Henderson demerger with in 2003 which would have allocated a portion of your cost base out to that entity.

I can work this all out for you but I need a couple more items:

- How many Henderson shares do you have? (I can figure that out myself, but good if you could confirm)
- What your current capital loss position is
- How many AMP shares and/or which parcel are you going to sell

There are no tricks to this. You need to go through the whole history to get it right. For each of your investments :)

[misterhorsey]

Hi Marty

That is ridiculously generous of you and I appreciate the offer. 

But my question was a little more general as I'm probably either going to hold onto AMP or sell it all down. And if that's the case, then I think the calculation is relatively straightforward. And its just a matter of doing the sums.

I uploaded the AMP sheet as an example of how I do things.

I actually don't remember the Henderson de-merger.  I'll have to track back to my original statements. 

But the bigger issue for me is how you calculate CGT when you do a partial sale on shareholding.  So as an example, I bought HVN at $2 a few years back, its gone up to $4.40 or something. As I've made back my initial investment, I'd like to sell half of my holding but then retain the other half.  Just not sure how to apportion the CGT.

I appreciate this isn't necessarily good investment theory (ie. getting attached to a share).  If I think its going to go up I should hang onto the whole thing. But  I'm hedging my bets somewhat and spreading more of my holdings into indexes to smooth out the volatility.

How do crazy day traders calculate this stuff, for example?

Or maybe going back to AMP an example, what happens if I sold down 25% of my existing AMP holding.  How would one calculate that?

I haven't yet gotten a piece of paper to try and work this through yet.  Just thought I'd shout out in case there were a few key principles I needed to understand, or anything I was missing.

[deborah]

Dividends are not included in capital gains/loss as they are income (like rent). There is a sheet that the ATO puts out, and it would be best if your spreadsheet imitated it - https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/39804n4151GLWsht14.pdf

It is interesting that you actually have a profit on your AMP shares, due to dollar cost averaging (over three transactions in 12 years).

When you sell your holdings, you can sell whichever shares you want to - so in the AMP example you could sell 25% of each parcel, or however many shares from each parcel you want to. You need to record exactly which shares you sold and which you have left. In the old days when you had share certificates you had to sell from one parcel.

[marty998]

Yeah you get to pick and choose which parcel/shares when you sell.

General rule is to always pick the one with the highest cost base.

Crazy day traders would be treated by the ATO as running a business - have to declare it as income not capital gains. Think of it this way:

A "BUY" is treated as cost of goods sold
A "SELL" is treated as revenue

Your shares are your inventory.

[marty998]

But the bigger issue for me is how you calculate CGT when you do a partial sale on shareholding.  So as an example, I bought HVN at $2 a few years back, its gone up to $4.40 or something. As I've made back my initial investment, I'd like to sell half of my holding but then retain the other half.  Just not sure how to apportion the CGT.
few key principles I needed to understand, or anything I was missing.

You work out gain per share sold, then multiply by all the shares you sold in that parcel.

So: ($4.40-brokerage - $2 + brokerage) x number of shares

[qwerty8675309]

Or maybe going back to AMP an example, what happens if I sold down 25% of my existing AMP holding.  How would one calculate that?

The ATO gives you a lot of flexibility when it comes to selling parcels of shares - Average cost, FIFO, LIFO, etc. However, as long as you can individually identify each of the parcels (from your Excel spreadsheet, you have good records of when you bought, and at what price), you can sell these in any way you choose. For example, if you wanted to sell 25%, but wanted to minimise your CGT, you would sell part from a parcel that made a gain, and then sell part from a parcel that made a loss, with the aim of paying $0 in CGT. It depends on what your tax objectives are...

....This reminds me of my accounting teacher back in school haha. He use to ask the class "So do you want a profit or a loss?" :P

[misterhorsey]

Dividends are not included in capital gains/loss as they are income (like rent). There is a sheet that the ATO puts out, and it would be best if your spreadsheet imitated it - https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/39804n4151GLWsht14.pdf

It is interesting that you actually have a profit on your AMP shares, due to dollar cost averaging (over three transactions in 12 years).

Thanks Deborah

- yes, I knew dividends weren't counted for CGT. The original spreadsheet I created was simply to track overall performance, i.e. if the share price tanked I could comfort myself by thinking of the dividends I was continuing to earn.  Although CGT is one of the reasons why I've avoided DRPs, as each tiny purchase counts towards calculating CGT.

- my profit on AMP? Yes!  Although 50% over 12 years is a pretty poor return.  It would have been the same had I kept it in cash (albeit, its probably more tax effective in equities).

- although its probably too kind of you to call it dollar cost averaging, as that would suggest I had had some clear strategy at the time.  3 purchases over 12 years are more reflective of 'trying to average down', but in effect for long periods of time I had probably 'caught a falling knife'.  I'm relieved its recovered, although I may sell all of it down and put it into an index.  Ultimately, as an insurer, AMP is simply investing its premiums as a float back into the market.  So its like buying into an actively managed fund, that is invested in the market, that can outperform the market, but as an financial services/insurer, is also very sensitive to natural disasters/people getting scared off the sharemarket.

When you sell your holdings, you can sell whichever shares you want to - so in the AMP example you could sell 25% of each parcel, or however many shares from each parcel you want to. You need to record exactly which shares you sold and which you have left. In the old days when you had share certificates you had to sell from one parcel.

Thanks for this. This is what I was actually struggling with conceptually, tho now I understand it seems to make sense.  Rather than focus than buying and selling shares (i.e. buy 500 shares, sell 250 shares), I was focusing on the market value of the shares (i.e. bought $1000 worth, sell $666, leaving behind $333) which makes the sums rather complicated and confusing.

By determining the number of shares, as individual units, then the profit (or loss) is calculated by subtracting the sale value from the cost base (initial price + proportion of brokerage for buying and selling).

Der. 

Thanks!

[misterhorsey]

Yeah you get to pick and choose which parcel/shares when you sell.

General rule is to always pick the one with the highest cost base.

Crazy day traders would be treated by the ATO as running a business - have to declare it as income not capital gains. Think of it this way:

A "BUY" is treated as cost of goods sold
A "SELL" is treated as revenue

Your shares are your inventory.

Thanks marty, re: "General rule is to always pick the one with the highest cost base", another gem.

Although the ultimate aim is to one day pay CGT with a smile, I'll string along the losses for as long as I can.

 

[misterhorsey]

Or maybe going back to AMP an example, what happens if I sold down 25% of my existing AMP holding.  How would one calculate that?

The ATO gives you a lot of flexibility when it comes to selling parcels of shares - Average cost, FIFO, LIFO, etc. However, as long as you can individually identify each of the parcels (from your Excel spreadsheet, you have good records of when you bought, and at what price), you can sell these in any way you choose. For example, if you wanted to sell 25%, but wanted to minimise your CGT, you would sell part from a parcel that made a gain, and then sell part from a parcel that made a loss, with the aim of paying $0 in CGT. It depends on what your tax objectives are...

....This reminds me of my accounting teacher back in school haha. He use to ask the class "So do you want a profit or a loss?" :P

Brilliant. Thanks Qwerty.  The fog has lifted and now I need to do some calcs with my spreadsheet.

[misterhorsey]

Thanks all. Your advice has helped me overcome a weirdly stubborn conceptual block that I've had re: accounting for part sale of shares.

Of course, the market has kicked up and on, and down again, so the goalposts have moved again somewhat.  But at least I have a few tools to figure out how to account for my sell down once it happens.

[Astatine]

Following! Yet another helpful Aussie investing thread. Thanks everyone!