Building Wealth and Loving It by Jimmy B. Prince

Author:Jimmy B. Prince
Language: eng
Format: epub
Publisher: Wiley
Published: 2011-09-15T00:00:00+00:00

Shares bought before 21 September 1999

If you own shares you bought before 21 September 1999 and you make a capital gain on sale, there are two ways to calculate a capital gain. They’re called the ‘discount method’ and ‘indexation method’. You can choose the method that will give you the best result. And that of course is the one that will result in you paying the least amount of tax!

⇒ Discount method. This method is identical to the way you calculate a capital gain today. In this case as you’ve held the shares for more than 12 months only half the gain is liable to tax. The balance is exempt (see figure 9.2).

⇒ Indexation method. Back in the good old days you were allowed to adjust your purchase costs (cost base) for inflation. This was done to eliminate having to pay tax on any gain that arose due to inflation. If you want to use this method you can only adjust for inflation from the date you bought the shares to 30 September 1999. As many years have now elapsed it’s very unlikely that you’ll use this method, as you’ll generally find the discount method is the preferred option (see figure 9.2). I show you how this method works in chapter 13.

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