Fair dividend rate method: quick sale gain amount

Sections EX 52(13) and EX 54(1) of the Income Tax Act 2007

The fair dividend rate ("FDR") rules in the Income Tax Act 2007 have been amended to ensure that the formula for calculating the "quick sale gain amount", ie, the gain on shares purchased and disposed of within the same income year, takes into account share reorganisations between the date the shares were purchased and when they were sold.

Under section EX 52(7), a quick sale adjustment is the lesser of two amounts-the "peak holding method amount" and the "quick sale gain amount".

For the "peak holding method amount", an adjusted calculation of average cost is used if a share reorganisation occurs. In such cases, average cost is calculated under section EX 54.

However, the rules do not currently provide an equivalent adjusted calculation of "average cost" when determining the "quick sale gain amount" in the event of a share reorganisation. This means that the calculation of average cost under the "quick sale gain amount" formula may not be accurate when there has been a share reorganisation.

Therefore, section EX 52(13) has been amended to provide that the adjusted average cost definition under section EX 54 can be used to determine the "quick sale gain amount", if a share reorganisation occurs.

Additionally, section EX 54(1)(b) is amended to include a reference to section EX 52(12).

Application date

The change applies for income years beginning on or after 1 April 2008.