When paperwork for capital gains tax is a 'nightmare'

In your column of October 29, you are correct to advise reader ML that she is in a nightmare situation if she only has a calculator or a spreadsheet to use to calculate the CGT cost bases after having purchased pre-1985 shares and then joined the Bonus Option Plan (BOP) as well as accepting subsequent rights issues. Although she didn't name the shares, I assume she refers to ANZ, which has a history of BOPs and rights issues. The nightmare disappears if she uses a system that specialises in CGT reconstructions using historical data. We have such a system, used by accountants etc and, with this system I replicated ML's account of her holdings. I assumed she had bought 2000 ANZ shares at $5/share on September 19, 1985 (the day before CGT started), then joined ANZ's BOP when it opened, and accepted future rights issues and the BOP issues on all her shares. The result is that she would have, as at June 30 this year, 34,105 ANZ shares with a market value of $979,495 spread across around 350 parcels of pre and post shares. Of these, 17,417 shares would be pre-1985 shares and exempt from CGT and 16,688 would be post shares subject to CGT. At the closing price of $28.72 a share on June 20, her assessable capital gain would have been $220,206 if she had sold all her shares (ignoring brokerage and other sales costs). G.K. AIMS-STM Pty Ltd

More than any other example I have come across, this illustrates the complexity of CGT records where people have pre-1985 shares and/or reinvest their dividends in either bonus share plans or dividend reinvestment schemes.

I estimate the investor would have had 65 occasions over 33 years in which she would have received seven dividend reinvestments and 58 issues under the bonus option plan when it opened from March 31, 1989. She would also have received a 1 for 5 rights issue at $3.76 a share on February 13, 1992, and a 2 for 11 rights issue at $13.00 on October 29, 2003.

I have seen people spend thousands of dollars on getting accountants to value the CGT liability of a longstanding portfolio to prevent the entire sale price considered to be a capital gain.

I can't help but feel that the legislation makes record keeping too complex.

I notice in a recent column that a reader had a query regarding the $300,000 downsizers' contribution to superannuation contained in this year's Budget. We had a similar query regarding the 90-day window and addressed it to the Treasury. Their reply indicated that the 90-day period started from the date of settlement of the dwelling, not the exchange of contracts. D.W.

The legislation (The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Bill 2017) was introduced to Parliament on September 7 and its wording requires that "the contribution is made within 90 days, or such longer period as the Commissioner allows, after the time the change of ownership occurs as a result of the disposal".

Lawyers, who are aware that when an asset is purchased the change of ownership occurs when contracts are exchanged, will be raising their eyebrows at the Treasury spokesman's definition. But, ultimately, that clause allows the ATO to set whatever later date it wishes and (quoting Sir Humphrey) it will presumably, at the appropriate juncture, in the fullness of time, when the moment is ripe, when the necessary procedures have been completed, tell us.

I am 63, a self-employed carpenter, earning roughly $60,000. My wife is 61, earning $15,000 permanent part time. We own our residence valued at about $600,000 and have an investment property worth about $500,000 with a $290,000 mortgage. Mortgage repayments are about $750 per fortnight. Our daughter with two nine year olds, and little income, is paying $300 per week rent. We are happy for the daughter and grandchildren to stay in the property on nominal rent at least until the kids are 18 or so - another nine years - at which time I will be struggling with my physical work and therefore struggling to make the mortgage repayments. My wife and I are in good health, have about $130,000 in super and $25,000 in a mortgage offset account. How do we access the equity in our properties so we can retire in about five years' time and keep everyone happily housed? I.C.

You can sell a portion of your home to the Bendigo Bank Associate, "Homesafe Wealth Release", or you can borrow against your home using a reverse mortgage. But I suspect that, using either of these, you would be increasing your debt or digging a deeper hole for yourself or both.

One option is to work nine more years instead of five, but instead of the manual labour involved in being a carpenter, can you possibly look to a less physically demanding work that utilises your experience. For example, can you use your certificates to look for a position as a foreman or site manager in a construction company? Given your experience, you could probably work in the quantity surveying, or insurance adjusting industries but would need to work with licence holders.

If this is impractical in your situation, one option is to sell the investment property and use the $200,000 or so of equity to build a granny flat (sound insulated with a private entrance!), in which to temporarily house your daughter and her children. This would have the advantage of eliminating mortgage payments, increasing the value of your home and, once your daughter moves out, insulating that money from the age pension's means test when you eventually retire.

You should still continue to charge your daughter $300 a week, which you can immediately place into your super funds, because you are going to need a lot more for your retirement. Without debt repayments, that rent would amount to over $140,000 over nine years.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Financial Ombudsman, 1800 367 287; pensions, 13 23 00.

This story When paperwork for capital gains tax is a 'nightmare' first appeared on The Sydney Morning Herald.