CGT exploit strategy

[money tree]

For those here who have done my course I present to you a new strategy:

Capital Gains Tax Exploit.

I have spent the last 2 weeks number crunching and have come up with a number of ways to make very good risk-free returns, by exploiting the 50% CGT discount rule.

By combining this new strategy with some of my earlier ones, returns of 30-40% p.a are achievable with zero or minimal risk.

PM me and I will send to you. :D

[kaveman]

very good risk-free returns

with zero or minimal risk

I guess all it takes is selecting the right stocks that will rise in value over the next year or so. Make certain you are NOT classified as Trader with the ATO.

If you are teaching people things about the stock market then how can you say "risk free"

If you have a system then display it openly, or is this a sales gimmick. Contact me and I will tell you how much this will cost

[money tree]

I guess all it takes is selecting the right stocks that will rise in value over the next year or so.
You guessed wrong.


If you are teaching people things about the stock market then how can you say "risk free"
Oh great. Another one of those "theres no such thing as risk free" parrots. I have already proved on this forum that risk free is not a myth.


If you have a system then display it openly, or is this a sales gimmick. Contact me and I will tell you how much this will cost
Shock horror! A financial advisor who wants to be paid for his services. The cheek of it! I will give out free strategies when windows becomes free.

[kaveman]

my apologies I did not know you were a financial advisor, just thought it was someone selling a risk-free cost-me gimmick. Must have missed your advisement of licence number to provide fin adv.

Risk free in the share market...just love it

perhaps this forum isn't for me after all when people can post adds without letting readers know they are adds for paid services.

[mime]

Risk free? I think your full of ****. So why don't you give me an example of your trading strat. Maybe I'll learn something new.

[wayneL]

Risk free? I think your full of ****. So why don't you give me an example of your trading strat. Maybe I'll learn something new.

I'll back up MT here...and no I am not a customer and have no connection...apart from knowing him from these forums for quite a long time.

Risk free is possible. I trade a risk free option strategy...when the right conditions pop up, about 2-3 times per month. No way would I give it away for free...I spent WAY to many hours on it.

I don't know what this new strategy is, but lets not have closed minds, eh?

[RichKid]

There is another thread here on a discussion of a risk free strategy started by MoneyTree: http://www.aussiestockforums.com/forums/showthread.php?t=896&highlight=risk+free

Also see his website if you like, you'll know from his post count that he is not one of those spruikers that just dropped by trying to sell a blackbox but this is not a plug for him either- make up your own mind.

While I have no idea about his strategy (I am not a client of his) it is difficult to discuss it without knowing it.

MoneyTree, we don't normally allow ads of this nature, better that you contact your clients directly in future or check with Joe first. I hope you understand that it can be seen as a taunt or solicitation when you make such posts. You have no doubt benefited from the exposure you have received on ASF just as we have from your posts but it is difficult to continue a thread when it is so vague.

Okay people, let's not get abusive either but feel free to discuss the issues as vigorously as possible.

[mime]

There is no such thing as risk-free. There is always a chance you could loose your money. People who say "risk-free" are just sales people trying to premote their service.

I'm not being closed minded, just realistic.

[wayneL]

There is no such thing as risk-free. There is always a chance you could loose your money.

If that is your belief, then for you, it is true.

Cheers

[money tree]

There is no such thing as risk-free.

and you know this.......how?

have you actually written programs and computer simulations, tested with real time data etc? Have you even bothered to THINK about whether a scenario can be modified to become risk free? or are you just another person for whom ignorance is bliss?

To say "no such thing as risk-free" just because some other equally ignorant person (who did no testing either) said it, is just rediculous. This is the problem in this world. Too many people are lazy, they cant be bothered thinking for themselves. Nobody wants to think outside the box. people are taught by schools and Universities how to think, and this always involves following a procedure. There is no allowance for "what if we change this and see what happens?"

Actually, I am shocked that people cannot figure this strategy out for themselves. I mean, I the rule is public knowledge and I told you it could be exploited. You already know that investments held for 365 days or more receive a 50% CGT discount, while investments held for 364 days or less pay the full CGT.

So what happens if we go long AND short for 364 days, decide which has a capital loss, exit that side of the trade, then the next day exit the other side. The "loss" (there is no loss in reality as it was fully hedged) is written down 100%. The "gain" is written down as discounted 50%. So what we end up with is no real loss or gain, but a loss on paper. On top of that, we get all the dividends. Now this is just the very basic outline and doing this alone will only make you only around 7% risk-free. There is obviously a lot more to it.

So I hope you can see how risk has been removed while a profit is made. If you still want to argue, please read my other posts where I discuss NABIOJ instalment warrants trading @ 83c that paid an 83c dividend plus a 35c franking credit.......total return (risk-free) was 43%. I dare you to keep arguing with me.

[kaveman]

was going to leave, but after seeing that some others are able to use their common sense to see a blatant system sell will stick aruond a bit longer, although you are probably saying "so what" :)

if trading on the stock market can be "risk free" then why does every book written about trading/investing include chapter/s on risk management

Once you buy you have absolutely no, I repeat absolutely no, way of knowing which way the price will move. By my definition that is risk

I would love to see a system that is risk free, please post one

[dutchie]

Mime

I would be interested in your definition of "risk free".

If you assume that the whole stock market might crash/your stock broker might crash or he runs away with everyone's money/the paper work or computer crashes so that the records of trades are lost or other calamaties occur then certainly no trade would be risk free.(Life is not risk free but we still live our lives managing the "risks" as best we can)

However if you assume that this will not happen then there certainly are risk free systems/trades (especially using options if your good enough to find them - See Waynes post).

Moneytree certainly has been inventive with his systems of making money and in most peoples minds "risk free" if so stated. If he quotes a "risk free" system/trade it would be at least prudent to at least look at it before knocking it.

I agree that it is difficult to assess its "risk free" status without seeing what it is but it is unfair to ridicule it without knowing what it is.

[GreatPig]

On top of that, we get all the dividends
You get the dividends from the long side, but have to fork them out for the short side.

GP

[money tree]

not if you do it my way :)

[GreatPig]

So what happens if we go long AND short for 364 days, decide which has a capital loss, exit that side of the trade, then the next day exit the other side. The "loss" (there is no loss in reality as it was fully hedged) is written down 100%. The "gain" is written down as discounted 50%.
By my understanding, that would not work as capital losses offset capital gains 100% in the same financial year. It's only the net gain that's discounted for tax purposes.

Even if you realised the loss on 30th June and then the gain on 1st July, the loss would carry forward and offset the gain 100%, leaving nothing to discount (assuming no change in price between the two sales).

You might get somewhere if you timed it right and realised the gain on 30th June after having held for 12 months and then realised the loss on 1st July. Then you'd only pay tax on 50% of the gain (assuming no other capital losses) but get 100% tax benefit of the loss in the next financial year. However, you'd only be able to do that once every 2 or 3 years, as that loss would offset any capital gains made in that next year.

GP

[money tree]

You are mistaken.

The rule states 365 days, it does not state that it must be within a certain financial year. It can span several years.


By my understanding, that would not work as capital losses offset capital gains 100% in the same financial year. It's only the net gain that's discounted for tax purposes.

Thats right. But we (Synapse had some input) have already thought of a way around that.

[mit]

So what happens if we go long AND short for 364 days, decide which has a capital loss, exit that side of the trade, then the next day exit the other side. The "loss" (there is no loss in reality as it was fully hedged) is written down 100%. The "gain" is written down as discounted 50%. So what we end up with is no real loss or gain, but a loss on paper. On top of that, we get all the dividends. Now this is just the very basic outline and doing this alone will only make you only around 7% risk-free. There is obviously a lot more to it.

Excuse my ignorance as I am not a tax expert but I thought you had to net your capital position first and then look at the CGT discount. This tax document seems to say this.

http://www.ato.gov.au/content/downloads/NAT4152-05.pdf


That move on the NAB warrant was pretty cool.

MIT

[mit]

There is one way it could sort of work. It does allow you to choose the way you net. From the strategy if you had a $10k gain and a $10k loss and nothing else it would just net out.

However, if you had made another $10k profit on a trade held less than 12 months you are allowed to select this trade to net against. So the net $10k gain could have the discount applied.

Also hedging but keeping the dividend. Isn't there a rule that you lose the franking credits if you hedge? I don't know that if this is a concern in this case.

I repeat that I am not a tax expert so am happy to be corrected.

MIT

[GreatPig]

The rule states 365 days, it does not state that it must be within a certain financial year.
If you are referring to eligibility for the 50% CGT discount, then I wasn't referring to that. Just that in any financial year, all losses (including carried forward losses) are offset against full capital gains before the discount is applied.



But we (Synapse had some input) have already thought of a way around that
Good luck then. Personally I'm wary of schemes that "get around" tax laws, as I think there's too much chance of them being challenged and perhaps having part IVa applied. I'd be looking for a private ruling before accepting any untried scheme that I wasn't comfortable with.

Cheers,
GP

[kaveman]

from the ATO document linked above

DISCOUNT METHOD
Subtract the cost base from the
capital proceeds, deduct any
capital losses, then divide by
two

so you (Gains-Losses-Costs)/2

so assuming you gained and lost the same amount,
Entry buy $10 short $10 (say 1000 shares)
Exit sell $11 cover $11
Costs, assume $50 per transaction, perhaps more if through full service broker
Costs $200
Assume you received some dividend which goes directly to your assessable income of 3% ie long position $30 and assume you did not have to pay the dividend on the short position??
Investments- capital
Long , short, costs
Entries $10,000 + $10,000 + $100
Exits $11,000 + $9,000 - $100
Dividend - income
$30

Received = (11+9)k - (10+10)k - (0.1+0.1)k = -$200 loss ie no CG
Received = $30.00 dividend on which you may be lucky to get tax credits to offset some of the tax payable on the income

I have not even allowed for slippage on the trade prices, or for any change in share price after you sold the intitial losing position - why because you do not know which way the price will go

now where have I gone wrong?

[mit]

Seems pretty well confirmed. But as in my reply above you could make it work if you had a third leg. Although you need to have a pretty good prior knowledge to make it work

You assume that you are going to make $10k in trades this year and want to avoid paying full tax on the trades.

You then do the hedge as suggested and set it up so that it is going to be +/-10k after 366 days.

So after 366 days you have

$10k in short term trading profits (NO CGT discount)
$10k hedge win (CGT Discount)
$10k loss.

The Tax office does allow you to pick what you want to net off and actually suggest that you use the CGT that hasn't a discount to start with. So your Short Term trading wins would net to zero against the hedge loss.

You would then be left with the hedge win that has the discount.

So you have effectively halved the tax owing on the trading profits.

Of course this assumes in advance that you know what you are going to make on trading and the outcome of the hedge.

MIT

[kaveman]

Of course this assumes in advance that you know what you are going to make on trading and the outcome of the hedge.

MIT

absolutely no risk involved in that :)

[dutchie]

I have a copy of Money Tree's strategy and although I have not fully taken in the whole paper I can see the merits of it.

Without giving away the exact details it appears to be a long term risk free system returning a minimum of 7% (and this figure increases depending on the entities used, dividends received and if the price falls or rises).
(A minimum 25% return would then be attainable).

The only risk factor would be a sharp change in price of over 10% on the last day of the strategy. On the entitities used in the strategy this would be unlikely.

Therefore I personally would class this strategy as risk free.

Nice work MoneyTree.

[mit]

Dutchie,

Does the strategy take account of what we have been talking about? MoneyTree seemed to indicate that his strategy depended on applying the CGT discount before neting against the loss. A look at the ATO shows that this isn't true, that you have to net first. In his hint he would have ended up with a zero position and so no paper loss. Have we misunderstood Moneytree?

MIT

[RichKid]

If that is your belief, then for you, it is true.

Cheers

Not taking sides here but Wayne reminded me of a favourite quote:

If you think you can do a thing or think you can't do a thing, you're right.
Henry Ford

(Also by Ford:
I am looking for a lot of men who have an infinite capacity to not know what can't be done.)

[RichKid]

Must have missed your advisement of licence number to provide fin adv.
..............
perhaps this forum isn't for me after all when people can post adds without letting readers know they are adds for paid services.

You are correct in that we don't encourage ads of this nature, I have brought it to MT's attention in my earlier post. As this discussion has been of some benefit to all I will let it continue, subject to Joe's advice.

If anyone is to take up MT's course/strategy it will have to be through him direct, I neither discourage nor encourage such a course of action on ASF but you are all free to make your individual decisions after considering his offer and taking appropriate professional advice.

[RichKid]

Good luck then. Personally I'm wary of schemes that "get around" tax laws, as I think there's too much chance of them being challenged and perhaps having part IVa applied. I'd be looking for a private ruling before accepting any untried scheme that I wasn't comfortable with.
Cheers,
GP

I commend you too MT (and Synapse) for being innovative and proactive but if it involves Tax you really would need a private ruling and a tax expert to be safe. This would be in your clients' interests as well. Just my opinion, not financial or legal advice about your methods efficacy or otherwise.

[GreatPig]

So your Short Term trading wins would net to zero against the hedge loss.
That would depend on whether or not the short term trading was classed as a business. If it was, then the hedge arrangement would have to be in a different entity otherwise it would just be classed as part of the same business. And of course you can't offset things across different entities.

Even if your short term trading was classed as investing, then you're just saying you make $20K profit and $10K loss and you're ahead. However, while the hedge part might be considered almost risk free, the short term trading part certainly isn't. It could also result in a $10K loss.

GP

[mime]

Wait a minute. What if your losses out weigh your gains? How are you supposed to profit from that? Does this strategy rely on you make a CG before you can profit?

[dutchie]

Mit, sorry about taking so long to answer your question.

The strategy does involve taking the 50% cgt discount before neting profits and losses.

[kaveman]

The strategy does involve taking the 50% cgt discount before neting profits and losses.

but haven't the rules changed and the 50% tax discount on profits can only be taken on nett profit, not before offsetting losses

Please rework your strategy to reflect the true tax rules as in force today, not 12 months ago

CGT event = (Profits - Losses) / 2

[jeffreytp]

Hi Money Tree,

I am interested in your webiste and risk free strategies. Can you please contact me?

Thanks,

Jeff