Capital Gains

[lindy0123]

Hi All,
Just wanting a little guidance - shares are not my thing...yet:( A friend has some shares that she bought let just say a little while ago for $1 - 30,000 of them - current value is $25 per share. If she was to sell them what CGT would she have to pay. I am at a lost as the minute so any help would be great. Thanks,

[Sir Burr]

a little while ago

Over 12 months?

[lindy0123]

Yes a lot longer than that.

[Sir Burr]

If the shares are sold 12 months or more after the date of acquisition, then only half of the realised gain from the disposal of these shares will be included in your taxable income.

[lindy0123]

Thanks, Just what I thought but not what I wanted to hear :)

[Sir Burr]

A tax expert can advise but possibly selling them off over a few tax years may save paying top $'s.

[shinobi346]

Thanks, Just what I thought but not what I wanted to hear :)

50% exempt. You can't complain there.

[stoxclimber]

There's also a step up of the cost basis with inflation - the ATO won't consider the gain as $24 a share but something less (although still not far from 24..shes in for a big tax bill! But can't complain with the money she made:))

[Wysiwyg]

Thanks, Just what I thought but not what I wanted to hear :)


Better than a slap on the ass cheeks with a dead mullet.:D

[GreatPig]

Yes a lot longer than that.
Before 19th September 1985?

GP

[Driver]

I've got a related question - what if the friend over the course of the taxation year made a number (say 10) trades.

Would they then be able to call themselves a trader, in terms of employment, and thus avoid the CGT? Or would things become worse, because now 100% of the $24/share gain is now considered income & will get taxed accordingly?

Hence the only real benefit of being considered a trader for tax purposes is that you get the ability to claim your losses as a deduction?

[Flying Fish]

Wot about capital loss. If I claim a loss for future years how long will it go on and what are the ramifications?

[born2win]

You get to claim your losses either your a full time trade or not. It's based on your net profit.

To become a full time trader as a business, you do need an ABN #, and the benefit on that is you can claim alot more expenses during the taxation year.

[Flying Fish]

You get to claim your losses either your a full time trade or not. It's based on your net profit.

To become a full time trader as a business, you do need an ABN #, and the benefit on that is you can claim alot more expenses during the taxation year.

Ok but how much trading do you need to do through the business?

[GreatPig]

Take a look at this thread (http://www.aussiestockforums.com/forums/showthread.php?t=2442).

GP

[lindy0123]

No they were purchased post 1985? Why would that make a difference ?

[Sir Burr]

No they were purchased post 1985? Why would that make a difference ?

Capital gains or losses as a general rule can be disregarded for CGT purposes when assets were acquired before 20 September 1985 (pre CGT).

[lindy0123]

Just one last question....Accountant is on holidays at the second. Sort of related though.....If the person who owned the shares and left them to say wife in the will. Does she have to pay CGT at the time of transfer into her name ? and then if she sold them in say 6mths what base price would be used to calculate the CGT at that time ? I hope this makes sense ? Thanks,

[Tysonboss1]

I've got a related question - what if the friend over the course of the taxation year made a number (say 10) trades.

Would they then be able to call themselves a trader, in terms of employment, and thus avoid the CGT? Or would things become worse, because now 100% of the $24/share gain is now considered income & will get taxed accordingly?

Hence the only real benefit of being considered a trader for tax purposes is that you get the ability to claim your losses as a deduction?


Capital gains tax is probally one of the best forms of tax as you get a 50% discount. so I would not complain about having to pay it,

On this example though I would probally sell down my holdings over a few years so as not to dump all the profit in one tax return there by paying tax at the highest tax bracket,

or wait for a year where my personal income is quite low, say the first year of retirement of a year where you are between jobs,

or if you bought them a really long time ago they may be capital gains tax excempt, in that case if the company is still performing well I would keep them.

[lindy0123]

My situation is the only income that my father in law earns is his war pension and income from shares. He as sold off some of his shares already and is unaware but soon to be educated on the joys of CGT. It will break his heart as we advised him not to sell this lot BUT some tax agent said he should and put the $$ into his super account. :mad: Not complaining yet BUT I am wanting to know if they are automatically passed on at the current value when inherited. If this is the case and the CGT is then calculated at the new value then the amount would be much better for my mother in law when she will need to use them / income to live. I am trying to find out before he runs off and sells the rest of his shares as he is not a well man. Any help would be great. Thanks,

[DionM]

My situation is the only income that my father in law earns is his war pension and income from shares. He as sold off some of his shares already and is unaware but soon to be educated on the joys of CGT. It will break his heart as we advised him not to sell this lot BUT some tax agent said he should and put the $$ into his super account. :mad: Not complaining yet BUT I am wanting to know if they are automatically passed on at the current value when inherited. If this is the case and the CGT is then calculated at the new value then the amount would be much better for my mother in law when she will need to use them / income to live. I am trying to find out before he runs off and sells the rest of his shares as he is not a well man. Any help would be great. Thanks,

Personally I would just sell as many as regularly as they need for an income (say 500 every six months?). Then the benefit is you pay less in tax (may even slip under a tax threshold), and the shares continue to appreciate (do the shares pay dividends? Even better if so).

Re: the transfer, I think you can just do an off-market transfer to his wife, dunno about other family members as an inheritance ... possibly the same rule anyway? Not sure.

[lindy0123]

Personally I would just sell as many as regularly as they need for an income (say 500 every six months?). Then the benefit is you pay less in tax (may even slip under a tax threshold), and the shares continue to appreciate (do the shares pay dividends? Even better if so).

Re: the transfer, I think you can just do an off-market transfer to his wife, dunno about other family members as an inheritance ... possibly the same rule anyway? Not sure.

Thanks DionM, Selling them off in small amounts doesn't really help as the dividends on the others still puts them in the highest tax bracket. BUT if he transfers them I am sure that there would be fees involved but do you have to pay CGT at the time of transfer ? Otherwise what is the difference with just selling them all off in one hit or in small amounts ? It would be great if he could transfer them to his wife pay a nominal fee and no CGT and she could live off the dividends....unless of course at that time she could reset the start price which it would then suit her more to sell off pay no or very little CGT. Any thoughts ?

[GreatPig]

Take a read of this (http://www.ato.gov.au/individuals/content.asp?doc=/content/37184.htm).

In particular, note the part that says:


There is a special rule that allows any capital gain or capital loss made on a post-CGT asset to be disregarded if, when a person dies, an asset they owned passes:

* to their legal personal representative or to a beneficiary, or
* from their legal personal representative to a beneficiary.

GP

[wipz]

Thanks DionM, Selling them off in small amounts doesn't really help as the dividends on the others still puts them in the highest tax bracket. BUT if he transfers them I am sure that there would be fees involved but do you have to pay CGT at the time of transfer ? Otherwise what is the difference with just selling them all off in one hit or in small amounts ? It would be great if he could transfer them to his wife pay a nominal fee and no CGT and she could live off the dividends....unless of course at that time she could reset the start price which it would then suit her more to sell off pay no or very little CGT. Any thoughts ?

Transferring the shares to the wife would constitute a "non at arms length transaction". CGT event A1 would occur and the market value substitution would kick in to deem the shares being disposed at market value.
If he held the shares longer than 12 months he will be entitled to 50% discount on the gain. If held pre 19 September 1985 they may be exempt from CGT all together.
Im pretty sure you could do some nice little tricks using super funds but i'd go see someone that is a INDIVIDUAL tax advisor.
I am a corporate tax advisor so I cant help you there.

[Tysonboss1]

Thanks DionM, Selling them off in small amounts doesn't really help as the dividends on the others still puts them in the highest tax bracket. BUT if he transfers them I am sure that there would be fees involved but do you have to pay CGT at the time of transfer ? Otherwise what is the difference with just selling them all off in one hit or in small amounts ? It would be great if he could transfer them to his wife pay a nominal fee and no CGT and she could live off the dividends....unless of course at that time she could reset the start price which it would then suit her more to sell off pay no or very little CGT. Any thoughts ?

It might be a bit late now,... But this is a good example of why buying investments in a family trust is a good long term stratergy.

If these shares where held in a family trust you could distrubute the dividends and capital gain on varying amounts to the family member with the lowest taxable income, so as soon as one member of the family reaches the a tax bracket higher than 30% you switch to another member and start distributing income to them, If all members of the family are in a tax bracket higher than 30% you can start to distribute the earnings into a company account where your tax rate is capped at 30%. the money in the company name can then be used to purchase further investments.

and the trust could continue to exist and hold the investments and distrubute income even after the original founders have passed away.