Have I missed something (capital losses)?

[DionM]

So with my sheet looking a sea of red, I'm thinking of turfing a couple of underperformers / stocks I was going to ditch anyway, and take the capital loss.

But it occured to me ... if I sell my stock, then re-buy it ... effectively I've made a capital loss (say $500 in the decline in value of my stock), but I still own the stock, all for the cost of 2 brokerage fees.

So for $60 outlay I've got a $500 capital loss to "perk up" my tax return, and I still own the stock.

Am I missing something here?

 

[Hyperion]

Re: Have I missed something (capital losses)

You now have a lower cost base so you will have a higher capital gain when you sell it a 2nd time.

I believe there are provisions against "wash sales" like this in the US. There might also be rules regarding "wash sales" in Aust, but im not sure. Anybody else know?

Hyperion

 

[refined silver]

Re: Have I missed something (capital losses)

So with my sheet looking a sea of red, I'm thinking of turfing a couple of underperformers / stocks I was going to ditch anyway, and take the capital loss.

But it occured to me ... if I sell my stock, then re-buy it ... effectively I've made a capital loss (say $500 in the decline in value of my stock), but I still own the stock, all for the cost of 2 brokerage fees.

So for $60 outlay I've got a $500 capital loss to "perk up" my tax return, and I still own the stock.

Am I missing something here?

Id the stock hopefully goes up and you end up selling for a gain and incur CGT, it will be calculated on your new lower buy price, cancelling the $500 capital loss, and leaving you with just extra brokerage charges.

You also restart the 12 month period required to reduce the CGT 50% potentially missing this benefit depending on when you wanted to sell.

 

[stargazer]

Re: Have I missed something (capital losses)

Hi DionM

No you are not missing something as long as you realize that capital losses can be offset towards and future capital gains.

So if you sell for a $500 loss and make $500 capital gain you pay no tax on the cg and still own the stocks that you re-purchased at the lower price.

Good June strategy...

Cheers
SG

 

[DionM]

Re: Have I missed something (capital losses)

True, it does lower the cost base, but if I end up holding for > 12mths, I get the discount anyway.

What also stemmed this is I want to transfer some stocks from my name to a joint account or my wife's account. It's $55 to do an offmarket transfer, $5 shy of a sell+buy on the market ($30 per trade). I was just going to do a buy and sell anyway, but was cautious with stocks that were in the green as I'd lose half my profits. But with those in the red, it's not so bad. That's what got me thinking about the CGT implications.

Case in point - I bought BLD some time ago for $7.30. It's now sub $6. I want to hold it for 5-10yrs anyway, so I'm thinking of rather than doing off-mkt transfer, sell it, take the capital loss "Benefit", buy it again in joint names.

And capital losses are only offsetable against capital gains? I sold some stocks this fin yr inside the 12mth period, so was headed for a CGT hit. Say I made $1000 in profit, if I have a $1000 capital loss, it would effectively cancel out any CGT I'd have to pay?

 

[MattB]

Re: Have I missed something (capital losses)

So if you sell for a $500 loss and make $500 capital gain you pay no tax on the cg and still own the stocks that you re-purchased at the lower price.

Ok, maybe I'm missing something now.
Sure, you're not paying CGT... but um, where are the capitol gains?
All I see is $0 (breakeven) and brokerage fee's... so you're actually down! So where's this 'secret' of avoiding CGT? You've made no gains!

 

[Hyperion]

Re: Have I missed something (capital losses)

Found what I was looking for... this was actually just released yesterday.

TR 2008/1

Summary: Part IVA (anti avoidance provisions) may apply to wash sales. A wash sale is when the taxpayer disposes of, or deals with, the asset and at the same time, or within a short period after, acquires the same or substantially the same asset; Part IVA will apply if, having regard to all the circumstances, the scheme was undertaken for the sole or dominant purpose of a tax benefit.


So you might want to have a read of this ruling before doing something like that. You need to have another reason other than just tax.

Hope that helps

(This is not legal/taxation advice blah blah blah....)

Hyperion

 

[TheIceMan]

Another question on a similar theme especially in this climate.

Assume I buy 20,000 shares in XYZ today at $1 and another 10,000 shares in XYZ next month at $0.50. Called "averaging down" - I think.

The following month I sell 10,000 shares at $0.60

Which shares have I sold ? Is it part of my first purchase, meaning that I have made a loss of $0.40/share , or, is it the second lot where I have made a profit of $0.10/share ?

I'm guessing it comes from the first parcel but would like to know. Or do I get a choice ?

 

[Prospector]

Your choice as to which parcel you sell.

 

[TheIceMan]

Another dumb question from a beginner.

If you have borrowed to invest and take a loss on a particular share trade. Can you still claim your interest on borrowings and brokerage ? In effect, making your capital loss larger. Or can you only claim the above deductions when you make a capital gain ?

 

[BeterValue]

Your choice as to which parcel you sell.

I don't think so. I believe you are always selling the oldest items first it is part of the FIFO rule.

The other thing to note here is that if you transfer into a joint name there are going to be CGT implications as well. IE I think you are effectively selling half at the current market price. You may want your accountant/ tax adviser's help.

Again you are not allowed to do anything for the sole purpose of avoiding tax.

These are just my understanding of the rules.

 

[Prospector]

I don't think so. I believe you are always selling the oldest items first it is part of the FIFO rule.

No, you can choose which parcel, a discussion here had some time ago:
https://www.aussiestockforums.com/forums/showthread.php?t=6115&highlight=CGT+share+sales

and

in this document number on the ATO website
NAT 4151–6.2006 -

as long as your records are kept appropriately

Again you are not allowed to do anything for the sole purpose of avoiding tax..

True

 

[GreatPig]

I believe you are always selling the oldest items first it is part of the FIFO rule.

FIFO is not a rule, just one suggested way of doing it.

GP

 

[TheIceMan]

Thanks - I accept that you can sell any parcel of shares that you choose.

What about my last question? About whether you can make your capital losses greater by claiming deductions such as brokerage and interest on borrowings, or does only apply when you make a capital gain?

 

[son of baglimit]

and just to throw some spice into your calcs...........

lets say you have purchased 6 lots of 500 shares in 1 stock over 2 years (as an example) - then you choose to sell 1000 shares.

each share is an INDIVIDUAL ITEM - meaning you can select 1000 individual shares you are selling, not have to select 2 specific parcels......your sale may be in the form of 100 from the 1st parcel, 50 from the 2nd, 700 from the 3rd etc etc etc - you decide the individual shares you have sold.

just keep the calcs for audit purposes.

 

[meganut]

Am I missing something here?

Yeah you are, remember it was your 500 bucks plus the 60 so your down $560, either way not good and you will never get a dollar for dollar value in any tax rebate/refund/reduction.

And if you sell at a loss and buy back in at a higher price you loose the compounding effect of volume that you had before, if the share price runs you don't make the same gains you could have.