Tax, dividends and investing

Re: Tax question from newbie =]

Sergio said:

thanks Burglar,

how to add my loss in previous financial year?

i will try to do my tax return on this FY myself as my tax only $1xx (just work once a week) =[

cheers
sergio

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From memory, a capital gain requires the use of a Supplementary Tax Form.

I would add the previous loss to current loss.
Then I would declare it in a current return.

But what I advise you, is this:
Speak to the Tax Man!
He is nice until you break the law! :

Re: Tax question from newbie =]

Sergio said:

however, how to add my loss in previous financial year?
or i only can deduct it if i got capital gain in the next FY year?

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There's an area in the tax return that asks you to detail "Capital losses carried forward from previous years" or something similar. That's where you'd include them. Like I said though, I think there might be a limitation on how long you can carry losses forward so look this up (10yrs maybe?). And while you're learning about CGT probably worth learning what a "wash sale" is and make sure you don't fall fowl of it if you're trying to make use of previous capital losses...

Re: Tax question from newbie =]

Zedd said:

There's an area in the tax return that asks you to detail "Capital losses carried forward from previous years" or something similar. That's where you'd include them. Like I said though, I think there might be a limitation on how long you can carry losses forward so look this up (10yrs maybe?). And while you're learning about CGT probably worth learning what a "wash sale" is and make sure you don't fall fowl of it if you're trying to make use of previous capital losses...

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doesn't "wash sale" normally refer to crystallising a capital loss to cancel out capital gains that would otherwise have had to be paid, as opposed to crystallising a capital gain to "use up" previous capital losses? there is no urgency to "use up" previous capital losses - they can be carried forward indefinitely: http://www.ato.gov.au/General/Capit...ss/Working-out-your-net-capital-gain-or-loss/

i think you can get around the wash sale rules if it concerns a major (ie. optionable) stock. i haven't actually done this myself (has anyone done it and gotten away with it?) but i did check this with my accountant a couple of years ago to make sure this option (pardon the pun) was available, and they said it was fine. sell the stock, realise the loss, and simultaneously open a synthetic long position (buy call, sell put at the same strike). one of the options will expire ITM and you will get your stock position back at expiry. of course there is commish and spread to pay but depending on the circumstances it might be worth it to get that capital loss crystallised early...

Re: Tax question from newbie =]

Sharkman said:

doesn't "wash sale" normally refer to crystallising a capital loss to cancel out capital gains that would otherwise have had to be paid, as opposed to crystallising a capital gain to "use up" previous capital losses?

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Usually, but my understanding is any sell-then-buy made for purely tax reasons is a wash. I was looking at doing just this to simplify my tax position, rather than to minimise any current or future taxes. Like I said, no real quals in this area, so I may be wrong. My comment was practically-newbie-to-newbie as I didn't learn about wash sales at the same time as CGT and had I of been in a position to do so I would have washed before I realised it was illegal.

there is no urgency to "use up" previous capital losses - they can be carried forward indefinitely

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Cheers. Not sure where I picked up the idea of limited carry forward.

I think you can get around the wash sale rules if it concerns a major (ie. optionable) stock. i haven't actually done this myself (has anyone done it and gotten away with it?) but i did check this with my accountant a couple of years ago to make sure this option (pardon the pun) was available, and they said it was fine. sell the stock, realise the loss, and simultaneously open a synthetic long position (buy call, sell put at the same strike). one of the options will expire ITM and you will get your stock position back at expiry. of course there is commish and spread to pay but depending on the circumstances it might be worth it to get that capital loss crystallised early...

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I'd be looking to get proper advice perform trying this one. As the purpose of the position is purely to incur a loss and minimise tax I think it would still be classed as a wash.

Re: Tax question from newbie =]

Zedd said:

I'd be looking to get proper advice perform trying this one. As the purpose of the position is purely to incur a loss and minimise tax I think it would still be classed as a wash.

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i did. my accountants said it was ok. but as i didn't end up using the tactic (in the end i didn't really have a reason to) i was curious to find out if anyone has indeed used something like this, and gotten away with it. i think my accountants' interpretation was that the wash sale rules stipulate that it is the sale and purchase of the *same asset* within a short period of time. an options spread is not the same asset as a stock, even if the risk profile would be practically identical.

i suppose if one was to be a bit more cautious one could take on a risk reversal with the strikes close together instead of taking on a synthetic long. then you could argue that the risk on the position has changed from the long stock position, therefore it cannot be a wash sale. though in that case you aren't guaranteed to automatically get the position back at expiry, but if you don't, it will be between the two strikes so you can simply buy it back normally at a price close to the original sale price at expiry, which should be far enough in the future from the original sale date to avoid falling into the wash sale rule.

Sorry Sergio, we're getting rather off-topic.

"…in substance there is no significant change in the taxpayer's economic exposure to, or interest in, the asset, or where that exposure or interest may be reinstated by the taxpayer".

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This is supposedly from TR 2008/1 from the ATO. I'm not sure if the site is down or if it's because I'm outside of Australia that I can't get it from the horse's mouth. I'd say by that definition, using any form of derivative to maintain your holding at the same price you sold it is a wash.

Zedd said:

This is supposedly from TR 2008/1 from the ATO. I'm not sure if the site is down or if it's because I'm outside of Australia that I can't get it from the horse's mouth. I'd say by that definition, using any form of derivative to maintain your holding at the same price you sold it is a wash.

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hmmm, yes that wording does sound like it would preclude the use of option spreads to avoid the wash sale rule. i'll have to check with my accountants again next year in april, and point that TR out to them, in case i find myself needing to do some wash sales next year. if using derivatives don't get you out of the wash sale rule, then perhaps resorting to using two separate entities may do the trick ie. if my trust needs to crystallise a loss, buy it back as myself (i'm not the sole beneficiary of the trust so should be all good there, as the beneficial ownership of the assets will have changed), and vice versa, if i need to crystallise a loss out of my individual holdings, then buy it back under the trust. i will have to make a note to check that up with my accountants pre EOFY as well.

thanks for those replies guys =]

thanks zedd, i just entered loss amount on capital loss and saved all of my evidence =]

Hi Guys,

i have another several questions regarding dividend if u guys dont mind =]

the case is (not a real life case, for example only)
i earn $4,500 franking credit (below $5,000 and all of them come from 100% franked dividend) and i am in 19% tax bracket.

it means franked amount $10,500, unfranked amount $0 and franking credit $4,500..
and i have to pay tax on $10,500+$4,500=$15,000
$15,000*19% is $2,850


so, is that means i will get $4,500 returned to me + franking credit rebate $1,650 ($4,500-$2,850)?

or

i just get the $4,500 ?


second case, how about if i have two stocks, each give me $4,500 franking credit (100% franked dividend) with a total $9,000 franking credit (my tax is 19%)

it means franked amount $21,000, unfranked amount $0 and franking credit $4,500...
and i have to pay tax on $21,000+$9,000=$30,000
$30,000*19% is $5,700

so, how to calculate amount will returned to me as $9,000 is over $5,000 rules?

is it $5,000 + $3,300 ($9,000-$5,700) ?

or

just the $3,300?

PS: i held the stock for NOT LONGER than 45 days for those 2 cases...



i know the link to ato in regard of this, but i still a bit confuse...help is much appreciated =]

http://ato.gov.au/Business/Imputati...edits---individuals/?anchor=P34-3937#P34-3937

thanks heaps,

Sergio =]

Hypothetically speaking, if a individual Aust tax resident was in the $18,201 to $37,000 tax bracket for 2013/14 income year and received a fully franked dividend of $10,500 and assuming the other income (here the example uses other income of $18,200 and no tax has been deducted from this income), then the tax on the dividends would be

$15,000 x 19% = $2,850

Medicare Levy (assuming no exemption and over the upper threshold limit) would be $33,200 x 1.5% = $498

So tax payable on $33,200 in this example would be $3,348

Franked Credits are $4,500

So refund would be $1,152

As hypothetical individual has not held said shares 'at risk' for at least 45 days during the qualification period, hypothetical individual would still get the franking credits under the small shareholder rule (assuming hypothetical individual is not under the related payments rule).

Second Example

Now assuming hypothetical individual received two dividends each being $10,500 fully franked and has not held the shares 'at risk' for at least 45 days during the qualification period and was still in the $18,201 to $37,000 tax bracket for 2013/14 income year. Firstly this example assumes that the hypothetical individual only has other income of $16,000 in order to say within the $18,201 to $37,000 tax bracket.

So in this example there is $37,000 of taxable income ($16,000 from other source and $21,000 from the dividends, noting that the shares where not held 'at risk' for at least 45 days during the qualification period and therefore not entitled to the franking credits).

Tax on $37,000 = $3,572 ($2,200 of the dividends is using the remaining amount of the tax-free threshold)
Medicare Levy on $37,000 x 1.5% = $555

Franking credits = 0

Net tax payable on $37,000 is $4,127

If the shares where held 'at risk' for 45 days or more during the qualification period then assuming hypothetical income had $16,000 of income from other source, fully franked dividends of $21,000 and franking credits of $9,000

Taxable Income is $46,000

Tax on $46,000 = $6,497 (being $0 tax on first $18,200 of income, $3,572 tax on the next $18,800 of income and $2,925 of tax on the next $9,000) of income
Medicare levy on $46,000 at 1.5% = $690

Total Tax is $7,187

Franking credits are $9,000

So refund is $1,813

Obviously this is not tax advice and people should seek their own tax advice specific to their own circumstances

Pink , thanks for answer my non-real life case =] it sum up almost everything up =]

however, does ATO do apportion on which shares are held for 45 days and which are not?

i red somewhere between this forum before, that once the FC over $5k, ALL of the shares need to be held for 45days?

Sergio said:

Pink , thanks for answer my non-real life case =] it sum up almost everything up =]

however, does ATO do apportion on which shares are held for 45 days and which are not?

i red somewhere between this forum before, that once the FC over $5k, ALL of the shares need to be held for 45days?

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Once you exceed $5k of franking credits then you need to pass the 45 day holding period rules for all parcels of securities that pay franked dividends. Any parcels of securities that you fail on you only lose those franking credits attributable to the failed parcels. Assuming that there are no related payments, the 45 day holding period only need to be passed once in respect of a parcel of securities.

There is a very good paper on the 45 day holding period. Just search the net using "ASX 45 day holding period rule" and it should be one of the first hits

thanks Pink, it all clear now =]

Hi guys

Do you declare divs in the FY of the ex date or the pay date?

Date I receive it in my bank account, so pay date

Roller_1 said:

Hi guys

Do you declare divs in the FY of the ex date or the pay date?

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I have always declared dividend income in the FY, into which the Record Date falls.
My Accountant has included the list in every Tax Return, so it can't have been illegal.
Have scoured the ATO website, but not been able to find any clear determination.

pixel said:

I have always declared dividend income in the FY, into which the Record Date falls.
My Accountant has included the list in every Tax Return, so it can't have been illegal.
Have scoured the ATO website, but not been able to find any clear determination.

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Yes i couldn't find much either Pixel. I spoke to my accountant, he said it goes by the pay date...

Roller_1 said:

Yes i couldn't find much either Pixel. I spoke to my accountant, he said it goes by the pay date...

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Your accountant is correct, it's the pay date.

First, I'll make the disclaimer I have no financial or legal qualifications. Having said that, for the purposes of an income tax return I understand dividends are declared as income in the year in which they are received. This may not necessarily apply to Exchange Traded Funds, such as STW, as those entities are a managed investment trust and, as a result, income from them relate to the taxation year during which the income was accrued. That may NOT be the year the distribution(s) are paid.

However, some ETF's do pay an actual dividend so the taxation year they are received applies. It can depend on how they are structured and the PDS should state the taxation implications although it requires some digging around. Always best to obtain the view of an appropriately qualified person.

PS: My statement about dividends is based on the Dividend Payment statements I receive from companies which advise within them that the dividend advice "is for use in preparing [year] income tax return. As the companies have been playing this game longer than me, I reckon they know what or what not to include in those payment statements.