ATO warns investors over 'wash sales'
The ATO has warned investors to be cautious about 'wash sales', the process of selling shares and buying them back a short time later to offset capital gains.
People getting their affairs in order for the end of the financial year should be cautious about disposing of shares or assets to reduce their tax, an expert says.
Despite the recent signs of improvement in the global economy that have pushed local equity markets to new seven-month highs, shares remain below their levels of a year ago.
As a result, many investors are left holding unrealised capital losses, that is, shares that are trading at a lower price than when they were bought.
Some may be considering selling these shares - to crystalise any loss - before June 30 to offset capital gains from other investments.
And Garry Payne, from tax training provider Kaplan Professional, says that's a legitimate tactic to lower capital gains tax.
But Mr Payne, a tax trainer with the education company, warns investors that the Australian Tax Office (ATO) will be closely watching how the shares are disposed of, who they are sold to, and whether they are repurchased shortly after June 30.
"What the tax office is concerned about it is where you've really manufactured a sale, for example you them sell to a related party and claim the loss and then you buy them back at the same cost," Mr Payne said from Perth on Friday.
"Which means you're left in the same position exactly as you were beforehand."