Tax loss selling by diluting shares

joeno · 20 May 2016

Hi guys as you know the ATO can crack down on you for tax loss selling if you: sell a stock (to cancel gains by stocks) then buy that stock back.

I am wondering if I buy more shares first (dilute my stock where I've had losses) then sell the diluted total, would the ATO stop the tax loss from this scenario?

e.g. 100 shares of BHP I've lost 50% on. I buy 100 more shares at current price, then sell 100 right after taking advantage of losses from 50 of my initial shares. While my holding stays the same.

McLovin · 20 May 2016

joeno said:
Hi guys as you know the ATO can crack down on you for tax loss selling if you: sell a stock (to cancel gains by stocks) then buy that stock back.

I am wondering if I buy more shares first (dilute my stock where I've had losses) then sell the diluted total, would the ATO stop the tax loss from this scenario?

e.g. 100 shares of BHP I've lost 50% on. I buy 100 more shares at current price, then sell 100 right after taking advantage of losses from 50 of my initial shares. While my holding stays the same.

It's still a wash sale. If it was that easy...

pixel · 20 May 2016

If you make a particular decision with the intention to minimise your tax obligation, it's odds-on that the ATO will see through the ruse and get stuck into you.
If you want to really save tax on a significant scale, you have to hire a team of Shysters and internationally savvy tax accountants to "organise" your affairs. That takes time and money. Lots of it. So it's only feasible for investors whom it saves a few more $Millions than the exercise costs them. Which excludes me and most likely you as well

joeno · 20 May 2016

Thanks. My big losers are Slater and Gordon, SDL, and BYL. Want get rid of some of them to reduce my taxes for <12 month profits. But i don't want to miss a potential shootup (even though my holdings in those stocks are minimal now )

McLovin · 20 May 2016

joeno said:
Thanks. My big losers are Slater and Gordon, SDL, and BYL. Want get rid of some of them to reduce my taxes for <12 month profits. But i don't want to miss a potential shootup (even though my holdings in those stocks are minimal now )

If you're a share trader, in the eyes of the ATO, then unrealised losses are tax deductible. The downside is your unrealised gains are taxable.

joeno · 20 May 2016

McLovin said:
If you're a share trader, in the eyes of the ATO, then unrealised losses are tax deductible. The downside is your unrealised gains are taxable.

I am not a share trader by profession. Just a hobby.

Seems like my best bet is to just sell my losing shares which I don't think will recover. Then cancel that against the sale of profit shares held <12 months (for maximum effect).

ROE · 20 May 2016

joeno said:
Thanks. My big losers are Slater and Gordon, SDL, and BYL. Want get rid of some of them to reduce my taxes for <12 month profits. But i don't want to miss a potential shootup (even though my holdings in those stocks are minimal now )

S&G arent going any where soon unless you are a trader and trade its volatility.
basicly next couple years it got to work for the bank to reduce debt, not allow to pay dividend.

Any other business banks would have call in the administrators but with law firm with bugger all asset but
human capital, they stand to lose the most.

so the bank make the best of the evil
they make S&G slave for the banks for a few years and see what money they can recoup failing that
next stop is corporate grave yard.

ROE · 20 May 2016

joeno said:
I am not a share trader by profession. Just a hobby.

Seems like my best bet is to just sell my losing shares which I don't think will recover. Then cancel that against the sale of profit shares held <12 months (for maximum effect).

yeah mark it as lesson learned and move on to better business, we all make mistakes, dont hang on to dogs and hope it will ressurect, it does happen for business with reliable cash cow and revenue but rarely for those with high debt and -ve cash flow

joeno · 21 May 2016

ROE said:
yeah mark it as lesson learned and move on to better business, we all make mistakes, dont hang on to dogs and hope it will ressurect, it does happen for business with reliable cash cow and revenue but rarely for those with high debt and -ve cash flow

In my case the dogs have left me nothing to hang on to I'd be selling mostly to reduce my taxes from sold profit shares from earlier this year

Also I'm trying to understand, for negating losing shares against winning shares held for > 12 months, can someone explain if it is worth it? I.e. if i profit $100 earlier this year for a stock held more than 12 months (i.e. only $50 is taxable), do i only need to tax loss sell $50 worth of loss or do I still need $100 worth of loss to cancel out my tax obligation?

qldfrog · 22 May 2016

joeno said:
In my case the dogs have left me nothing to hang on to I'd be selling mostly to reduce my taxes from sold profit shares from earlier this year

Also I'm trying to understand, for negating losing shares against winning shares held for > 12 months, can someone explain if it is worth it? I.e. if i profit $100 earlier this year for a stock held more than 12 months (i.e. only $50 is taxable), do i only need to tax loss sell $50 worth of loss or do I still need $100 worth of loss to cancel out my tax obligation?

I am not an expert but from my knowledge if you only did this 100$ profit in the year then you would need $100 of loss BUT
you can arrange the way you do your sums so :
if you also did sell $100 for profit in a week trade yesterday (no CGT discount) on top of your previous 100$ discounted CGT sales ($200 income), the 100$ loss could be matched to that no CGT discount income first and the $100 remaining gain will be allocated to your discounted one;
you end up having only $100 with 50% discount CGT to pay;
Your loss event would be fully maximised tax wise as opposed to your initial case
PLEASE check as I am not an expert and may be wrong;
Anyone?

cynic · 22 May 2016

qldfrog said:
I am not an expert but from my knowledge if you only did this 100$ profit in the year then you would need $100 of loss BUT
you can arrange the way you do your sums so :
if you also did sell $100 for profit in a week trade yesterday (no CGT discount) on top of your previous 100$ discounted CGT sales ($200 income), the 100$ loss could be matched to that no CGT discount income first and the $100 remaining gain will be allocated to your discounted one;
you end up having only $100 with 50% discount CGT to pay;
Your loss event would be fully maximised tax wise as opposed to your initial case
PLEASE check as I am not an expert and may be wrong;
Anyone?

That was more or less my understanding also. Basically the net capital gain is calculated before application of the CGT discount and the manner in which losses are used to offset gains may be done in such a way as to ensure maximisation of any discountable gains. The crucial point to remember, is that the discount (when applicable) is always applied after subtraction of any losses.

McLovin · 22 May 2016

Probably also worth pointing out that capital losses can only be applied to capital, not revenue. Revenue losses, otoh, can be applied to capital or revenue accounts

Klogg · 22 May 2016

cynic said:
The crucial point to remember, is that the discount (when applicable) is always applied after subtraction of any losses.

Agreed, this is crucial. I learnt this the hard way when my tax bill was larger than I expected, because the capital losses were applied before CGT discounts.
Not the best way to learn it, but I don't think I'll forget now :bonk:

Tax loss selling by diluting shares

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