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Australia's capital gains tax (CGT) rules applying to shares will change substantially from 1 July 2027.
The changes are particularly relevant to shareholders who have held shares for many years, including shareholders who acquired their shares before capital gains tax was introduced on 20 September 1985.
For shares acquired on or after 20 September 1985, a capital gain or capital loss generally arises when the shares are sold or otherwise disposed of.
Broadly, the capital gain is the difference between the proceeds received for the shares and their cost base.
Individuals and trusts that have held shares for at least 12 months are generally entitled to the 50% CGT discount. This means that, after applying available capital losses, only 50% of an eligible capital gain is generally included in the taxpayer's assessable income.
Different rules apply to companies and complying superannuation funds.
Shares acquired before 20 September 1985 are generally known as pre-CGT shares.
Under the existing CGT regime, a capital gain or capital loss arising from the disposal of a pre-CGT asset is generally disregarded. There are some exceptions to this rule.
Consequently, a shareholder who has continuously owned shares since before 20 September 1985 can generally sell those shares without paying CGT on the increase in their value since acquisition.
From 1 July 2027, the existing 50% CGT discount will generally cease to apply to gains accruing after that date.
Instead, eligible taxpayers will generally be entitled to index the cost base of their shares for inflation, so that CGT is imposed on the real, rather than inflationary, component of the capital gain.
A minimum tax rate of 30% will also apply to relevant real capital gains accruing from 1 July 2027. (The new Division 119 essentially ensures that an affected individual's tax attributable to the relevant capital gain is not less than 30% of that gain. It is a minimum-tax mechanism; if the person's ordinary marginal tax treatment already produces tax above that level, the 30% provision doesn't reduce it to 30%.)
Importantly, the new rules are prospective. They are not intended to impose the new CGT treatment on gains that have already accrued before 1 July 2027.
Special transitional rules apply to shares and other CGT assets already held when the new regime commences. In broad terms, the legislation divides the gain into:
The legislation contains deemed disposal and reacquisition provisions to establish the division between the two periods.
This is an important change for long-term shareholders.
Shares acquired before 20 September 1985 do not simply lose their existing pre-CGT protection on 1 July 2027.
The capital gain attributable to the period before 1 July 2027 remains disregarded.
However, growth in the value of those shares from 1 July 2027 onwards may become subject to CGT when the shares are eventually disposed of.
In practical terms, 1 July 2027 becomes a new starting point for determining the taxable post-2027 gain on shares which were previously entirely pre-CGT.
Suppose an investor acquired shares in 1984 for $10,000.
The shares are worth $200,000 immediately before 1 July 2027 and are eventually sold for $260,000.
The increase in value from $10,000 to $200,000 occurred while the shares were protected by their pre-CGT status and is generally disregarded.
The post-1 July 2027 increase—from the relevant 1 July 2027 value to the eventual sale value—is potentially subject to the new CGT regime.
Accordingly, the fact that shares were originally acquired before 20 September 1985 will no longer necessarily mean that all future gains on those shares are permanently exempt from CGT.
Shareholders with investments acquired many years ago should be particularly conscious of the value of those investments at the commencement of the new regime.
For listed shares, establishing market value at 30 June 2027 should generally be relatively straightforward.
For unlisted shares, however, establishing the appropriate value at the transition date may be considerably more difficult.
Records supporting the value of long-held investments around 30 June 2027 may therefore become important if the shares are subsequently sold or otherwise disposed of.
Capital losses will continue to be important under the CGT regime.
A capital loss generally cannot be deducted from salary, interest, dividends or other ordinary income. Instead, it can generally be applied against capital gains, with unused net capital losses carried forward for use against capital gains in future years.
Shareholders in companies that have failed, been suspended or delisted may therefore wish to establish whether they can realise a capital loss on their shares.
deListed provides a service which enables shareholders to dispose of eligible worthless or near-worthless securities and thereby establish a disposal for CGT purposes.
