Tax Implications of Rebalancing

[Eject!]

Newbie here. Started investing in ASX via Commsec in early 2020, with a view to early retirement.

If I want to rebalance, and this involves trimming a position / selling some stock to buy another, would this incur capital gains tax if the cash doesn't leave my brokerage account?

Am I better off sticking to a buy-only strategy to maintain the desired allocations?

 

[Warr87]

Newbie here. Started investing in ASX via Commsec in early 2020, with a view to early retirement.

If I want to rebalance, and this involves trimming a position / selling some stock to buy another, would this incur capital gains tax if the cash doesn't leave my brokerage account?

Am I better off sticking to a buy-only strategy to maintain the desired allocations?

any profits/losses from any sale of an asset is taxed. The fact it is in a brokerage account doesn't change this fact.

whether its 'capital gains' is determined by how long the asset has been held. otherwise it is likely 'income' like most trading.

sticking to 'buy and hold' purely for tax reasons doesn't sound like a strategy to me. eventually you have to pay tax anyway. i would be looking at maximising my return, not putting off paying tax until a later date.

seek professional tax advice for whatever specific circumstance you have. none of us here really know what your situation is so advice will change based on your circumstances.

 

[charlsie]

eject, whenever you enter/exit a position, its triggers a tax event. It doesn't matter where the cash goes. I strongly suggest you learn the tax implications of your trades. There's a plethora of information here to help guide you and using the search engine will guide you to what's needed.
good luck on your journey and hope to see more posts in the future

 

[Eject!]

whenever you enter/exit a position, its triggers a tax event.

In the context of long-term investing (not trading), what tax event is relevant when you enter a position? I was under the impression that only selling was taxable.

 

[Warr87]

In the context of long-term investing (not trading), what tax event is relevant when you enter a position? I was under the impression that only selling was taxable.

the date and price you buy it (important for sale later on). and GST.

 

[qldfrog]

In the context of long-term investing (not trading), what tax event is relevant when you enter a position? I was under the impression that only selling was taxable.

when you enter, the "tax event" is NOT a tax to pay but the start of the clock, and the price the basis for CG
You need to record these carefully and have proof if need be in case of a tax audit (up to several years post the sale of that packet);
Example
you buy shares tomorrow, sell them in 5 years, and get a tax audit 3y later: the ATO might want to see the proof of your purchase=> aka you need to keep these records/paper for the whole 8y ..basically until you sell...

 

[charlsie]

thanks to Warr87 and qldfrog for explaining what i was referring to.

I was in a hurry to get out the door as i read your question and noticed that 35 people had viewed your post and no-one had responded with an answer. I thought that was a bit rude as it's an easy question, my response wasn't very clear and my apologies for that.
NB: As i had finished my post and put it up, i then noticed Warr87 had responded as i was typing

 

[againsthegrain]

I have a question that is relevant to the original post also.

I have not found myself in this scenario yet but no doubt I will:

Buying 2 parcels of shares, then selling 1 parcel when it is held for over 12 months (50% cgt discount) while second parcel is held less then 12 months.

E.g

I buy 500 shares in company X on Jan 1 2020

I buy 500 More. shares in company X on Jan 1 2021

I now hold total 1000 shares in company X

Both parcels are higher in value on Feb 1 2021 so I decide to sell 500 shares.

Obviously I get to chose to sell the 500 that I purchased on Jan 1 2020 and held for 13 months, therefore pay only 50% cgt? Is my assumption correct, simple as that? Usually with ato its not..

 

[So_Cynical]

E.g

I buy 500 shares in company X on Jan 1 2020

I buy 500 More. shares in company X on Jan 1 2021

I now hold total 1000 shares in company X

Both parcels are higher in value on Feb 1 2021 so I decide to sell 500 shares.

Obviously I get to chose to sell the 500 that I purchased on Jan 1 2020 and held for 13 months, therefore pay only 50% cgt? Is my assumption correct, simple as that?

Yes - Simple as that.