Have you sold shares in the last 30 years? The ATO is coming for you

With the public float of institutions such as the Commonwealth Bank, Telstra, and now Medibank Private, more Australians today hold shares than ever before. But with that comes the ever-present worry about tax. Owning shares has tax consequences, not all of them bad, but consequences nonetheless.

When someone buys shares, it is prudent to record the cost of those shares and of any share additions or relevant costs at later times. This establishes what is known as a “cost base” for capital gains tax purposes. If shares are sold and a capital gain is taxable, the intention is that only the gain is taxed – but that gain has to be worked out.

The Tax Office has had concerns for some years that not everyone who owns shares understands the tax, especially CGT, implications.

So, the ATO has now announced that it will data-match share registry details since the date CGT commenced i.e. from September 20, 1985 to check if people are correctly complying with the tax laws. This is a huge exercise and will give the Tax Office a massive volume of information.

The ATO will acquire details of entity share registries for the period September 20, 1985 to June 30, 2016 from the following sources:

• Link Market Services Limited;
• Computershare Limited;
• Australian Securities Exchange Limited;
• Boardroom Pty Ltd;
• Advanced Share Registry Services Pty Ltd; and
• Security Transfer Registrars Pty Ltd.

The type of data the ATO will collect includes: full name and address; holder identity number; shareholder registry number; entity name; entity ASX code; purchase date – from 20 September 1985; purchase price; sale date; sale price; quantities of shares acquired or disposed of; corporate actions affecting shareholders (e.g. corporate reconstructions); broker identity; transaction codes; entity type; and direction indicator (buy or sell).

The ATO says the records will be electronically matched with certain ATO data holdings to identify non-compliance with registration, lodgment, reporting and payment obligations under taxation laws.

It is estimated that more than 95 million records will be obtained, including the records for approximately 1.2 million individuals.

The ATO says the program aims to identify income tax returns that may not include accurate information relating to the disposal of shares and securities, especially in relation to CGT. It will also identify taxpayers that have outstanding returns or not correctly registered for their taxation obligations. The ATO also hopes to use the data to enhance voluntary compliance through the pre-population of information into tax returns.

Owning shares can provide the owner with a steady stream of dividends which, if fully (or even partially) franked, can provide very useful tax savings. However, when shares are sold, taxpayers may not appreciate the tax consequences (if any) that may follow. I suspect this new ATO data-matching exercise has the potential to uncover some nasty surprises for taxpayers.

Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.

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