580 Shares, securities, etc: identification

Summary

When shares are sold it is necessary to identify the shares sold so that the base cost and acquisition date can be determined for indexation purposes. This section gives rules for the identification of shares or securities of the same class or kind and other assets (for example, commodity futures) which are of such a nature that they can be dealt in without the necessity to identify the particular assets disposed of or acquired. Generally, where such assets are disposed of, they are to be identified with assets acquired on the principle of “first in, first out”.

Provisions are included for dealing with shares which were covered by the general “pooling” rule contained in paragraph 13 of Schedule 1 to the Capital Gains Tax Act, 1975 and which were purchased between 6 April, 1974 and 5 April, 1978. Briefly, under the pooling rule shares of a particular company of the same class which were acquired in the 4 year period mentioned were regarded as a single asset which grew or diminished when additional shares were acquired or some of the shares in the pool were disposed of. The pooling system took the average cost of the shares in the pool as the base cost of each share sold and did not take the period of ownership into account. The pooling system would not have been acceptable in relation to the provisions for indexation (see section 556) because the date of acquisition and period of ownership of each asset must be identified for the purposes of those provisions. Accordingly, the pooling system was discontinued as from 6 April, 1978, the date from which indexation was originally introduced. Section 580 contains rules for identifying shares disposed of before 6 April, 1978 with shares acquired between 6 April, 1974 and 5 April, 1978 so that the date of acquisition and cost price of shares acquired on different dates and remaining in the pool on 6 April, 1978 are available for the purpose of identifying them with disposals made after that date.

Details

Shares of same class identified on first in, first out basis

(1) In so far as they are of the same class, shares disposed of are to be identified with shares acquired on a “first in, first out” (FIFO) basis.

(2) The test for determining whether shares are to be treated as being of the same class is whether if the shares (whether quoted or unquoted) were dealt in on a stock exchange (anywhere) they would be so treated. That classification once made is to prevail against any different description given in the form of disposal, transfer or delivery. Thus, even though shares may, for example, be identified by numbers, they are to be treated as being of the same class if that is how stock exchange practice would treat them.

Application to securities and certain other assets

(3) The section applies to securities as it applies to shares.

(4) The rules laid down in the section (excluding the provisions of subsection (2)) apply also to such assets as can be dealt in without identifying individual items such as, for example, commodities.

Shares formerly dealt with on the pooled basis

(5) The rules by which shares which were dealt with on a pooled basis under paragraph 13 of Schedule 1 to the Capital Gains Tax Act, 1975 are to be identified with shares disposed of on or after 6 April, 1978 are set out.

Where between 6 April, 1974 and 5 April, 1978 shares were acquired on different dates and a disposal takes place on or after 6 April, 1978, that is, there was no disposal between 6 April, 1974 and 5 April, 1978, the shares disposed of, even though they were pooled, must be identified on a “first in, first out” basis. Where, however, there was a disposal between those 2 dates out of pooled shares, this identification is not possible without a special provision because the shares acquired on different dates became indistinguishable parts of a single asset. The disposal in question was not related to any specified acquisition but was treated as having an acquisition cost based on the average cost of the shares in the pool.

Rules are therefore laid down for identifying the shares so disposed of before 6 April, 1978, with the shares acquired so that the date of acquisition and cost price of the various parcels of shares acquired on different dates and remaining in the pool on 6 April, 1978 are available for the purpose of identifying them with disposals after that date. In effect, this is done by abolishing the pooling rules and treating disposals made between 6 April, 1974 and 5 April, 1978 as if they had been made proportionately out of each of the blocks of shares acquired on different dates.

(5)(a) Thus, it is provided that subsection (5) is to apply to the disposal on or after 6 April, 1978 of any pooled assets where the pool consisted of assets acquired on different dates and a disposal had been made out of the pool before 6 April, 1978.

(5)(b) For the purpose of applying the FIFO rule laid down in subsection (1) —

• pooled shares acquired on different dates are to be treated as distinguishable parts of a single asset acquired on the dates on which they were in fact acquired and for the actual consideration for which they were acquired,
• it is to be assumed on each occasion on which there were a disposal before 6 April, 1978 out of pooled shares that each of the distinguishable parts of those shares held immediately before the disposal was reduced as regards both the number of shares and the expenditure attributable to them in the proportion which the number of shares disposed of bears to the total number of shares in the pool immediately before the disposal, and
• the number of shares in each block held on 6 April, 1978 and the deductible expenditure attributable to them is, in relation to a disposal made on or after that date, to be the number and amount determined in accordance with this subsection.

(5)(c) The treatment provided for in this subsection is not to affect the computation of any gain or loss under the normal pooling rules in respect of disposals made before 6 April, 1978.

(6) It is made clear that the special rules in section 581 relating to acquisitions and disposals within a 4-week period take precedence over section 580.

Relevant Date: Finance Act 2021