Given that there are 2 ways to work out capital gains in relation to how long the shares have been held - can I choose which gain I offset any capital losses against?IE can I offset my losses against the gain that I pay 34% tax on, before offsetting against the gain that I pay 17% tax on? All gains and losses on sharemarket.
i don't know how you work it out because it's not very clear what you are trying to say, however my way (not officially sanctioned is)ANY TOTAL CAPITAL GAINS INDEXED FOR INFLATION (MINUS) ANY TOTAL CAPITAL LOSSES = total capital gain (hopefully).Of that capital gain, take away % of tax payable and that should be it !!!!Please don't refer me to the ATO, if i'm wrong !!!Lance
Yeh, I wondered if I was being clear enough.Let me try again.CGT on shares held over 12 months is taxed at marginal tax rate divided by 2 or it is indexed, take your pick.CGT on shares held less than 12 months is taxed at marginal tax rate non-indexed.Assume $2000 CG on shares ABC held 2 years and $2000 CG on shares XYZ held 2 months. Capital loss of $2000 on shares MNO held 6 months.Offsetting the loss against XYZ means paying less tax than offsetting the loss against ABC.The question is "Can I nominate to have the loss on MNO offset against the gain on XYZ?"Feel free to correct any errors of interpretation I have made. This is probably a question for a CPA.
Nah ... lets refer Lance to the ATO??? Honestly Lance I really do not think that the ATO has the time nor personnel to answer and questions on any subject other than the GST right now. Any even on this they can't get the facts right!>>CGT on shares held over 12 months is taxed at marginal tax rate divided by 2 or it is indexed, take your pick.<<You have to hold assets for a term longer than 12 months to be a capital asset. If you trade in any asset within a 12 month period it is deemed assessable income - not capital gains.The old method of dealing with CGT (prior to introduction of the new legislation on Oct 19, 1999 (?) is that all capital gains (net of capital losses) were treated as income and subject to indexation. Therefore if you acquired BHP shares at AUD12 say 5 years ago and sold them today for say AUD18 then you have made a AUD6 'gross' capital gain. However the acquisition price is subject to indexation at the CPI rates over the past 5 years. Say indexed the 'net' capital gain is AUD3, then you have to pay the tax on the AUD3 at current marginal rates (if you are in the 34% tax bracket than at 34% - 48% then at 48% etcetera). Note that the assessable income plus net capital gains is the total that levies are applied too, so the minimalist approach is not to earn any assessible income in the year that large capital gains are to be made.Since Oct 1999 you have too choices, that is the old way or the new way. The new way based on the same example of BHP shares is that the Capital Gains is an amount of AUD6. This is then subject to marginal tax rate on assessable income divided by 2! The effect is that only half of the capital gains are added to your assessable income. Your tax rate stays flat after the assessable income so you pay half of the tax rate on the capital gains. Does that make sense?All tax accountants worth their salt will work out both methods and apply that method which has the least amount of tax applicable to their clients. I know a lot of accountants who do not know the Act has changed so good luck!Any capital losses can only be offset against future capital gains. Capital losses cannot be offset against assessable income. Therefore if during the year you made a loss on ABD shares of say $25000 but a capital profit on BHP shares of $20000 then no capital gains tax is payable and you can carry the carried forward loss of $5000 forward until you have a capital gain that can write thsi amount off.If however you have a $20000 capital loss on ABD and a capital gain of $25000 on BHP then the difference of $5000 is subject to Capital Gians Tax.Now on the difference that is subject to CGT; under the old method; you have to index both lot of shares and ascertain what the 'indexed' cost base is on each share and subtract these figures to ascertain the 'net' capital gain for taxation purposes. Under the new method the Capital Gain is $5,000. And if you are on the marginal rate on assessable income of 48% the capital gains tax is applied at the rate of 24.5%. I hope this makes sense! Does this answer your question/And I thought I had problems with my lecturers... I only realise now that they have a problem with understanding me!
Thanks for your answer, already knew 95% of that but you made me aware of the relevant point."You have to hold assets for a term longer than 12 months to be a capital asset. If you trade in any asset within a 12 month period it is deemed assessable income - not capital gains."Assessable income vs capital gains. Where I was going wrong was thinking of it all as capital gains.This brings up a different question on exactly the same circumstances.Assets held less than 12 months - sold at a loss.Is this a capital loss or negative income?Can I use this to reduce my taxable income.If not why not? I know the Tax Office think they are a law unto themselves but can they have it both ways?Am I clutching at straws?
Shares are a travesty of justice in that the ATO needs to know if you are a share trader or not. That is the question and the ultimate answer ... not really a paradox if you play the game to their book the Income Tax Assessment Act (1997) and the Capital Gains TLIP.You will need to assess a situation that may or may not exist in the eyes of the ATO and it is recommended that you seek your own accountants views on the subject.
I simply hate tax law... pure and simple it is a pain in the proverbial yet I practice and study regularly. That even amazes me sometimmes as I am trying to work out whether I will be a nutty profeesor at Gladesville!It should be noted that the character of an item never changes, if it is an asset it is an asset! If it is a capital gain (or loss) on sale of an asset it is a capital gain (or loss) and the treatment of the profit from the gain (or loss) will be treated differently had you transacted the acquisition and sale in 12 months or in excess of 12 months.Note that you can have a business being a 'share trader' and in this instance it is necessary to prove to the ATO that you are a share trader not a mere casual investor. Therefore they (ATO) judge matters according to the number of share trades that one does in a particular year. To my mind you can trade shares and warrants as a business. Note that you can even transfer assets from trading stock to fixed assets under the legislation so whilst you trade in one stock you can transfer other stocks to assets as a revenue supplier (by virtue of dividends).If it all gets too complicated try the search engine out at thsi URL.http://law.ato.gov.au/atolaw/view.htm?basic=capital+gains+tax%20assets+bought+sold+in+a+12+month+period&&docid=TXR/TR964/NAT/ATO/00002
Thanks for that link John, after reading that, the main thing I got out of that,(apart from "keep proper records") is that it appears the Govt dangles the carrot(CGT on half of gain) and the ATO does anything it can to stop us reaching it (FIFO).The more you read, the more complicated it is. I think I'll just leave the complicated stuff to my accountant and try to maintain just a general personal understanding. Probably just enough to get me into trouble.Correct me if I'm wrong, but if I declare myself as a share trader, I lose the advantage of only paying half the gain on shares held longer than 12 months. As a trader these would be taxed at my marginal tax rate ie counted as income. This is my last question on the subject, Ive taken up enough of your time already.
If you make the declaration of share trader you do lose CGT benefits as it is treated as assessable income (or losses) from a business concern. Hence CGT better!There is no reason, from my point of view, that you cannot be a share trader in one year and incur say massive losses and then transfer trading stock through to the asset accounts as investments only in the following year. The ATO would have to look at your intentions throughout the two tax periods and I feel that a large loss through trading is a prime motivator to quit trading as a speculator and go investor via long term buy and hold.If you look at the situation and your 'costs' are recorded correctly in acquisitions and your closing stock is at 'market value' and a loss is shown (after taking into consideration all of the legitimate expenses of brokerage, bank fees, telephone, internet connection (research) etal) then I would recommend that, if the trades are sufficient, then go for it! It is a very simple conclusion at the end of the day and when ones equity in stocks suffers through the volatility of the equity markets, there should be some incentive to maintain and offset against other assessable income.During the 1987 crash the ATO were paranoid about not being able to collect sufficient revenue as everyone wanted to become share traders. The losses incurred by individuals in the main could not be offset against assessable income and the effect on personal asset base at the end of the day was extreme. This in fact put a lot of people 'off' investing in the share markets. Even today I find that people prefer 'real' or 'tangible' assets rather than shares, when shares have the best capital growth and income (annuities) ability over time. Especially when one looks at retiring and the annuities afforded by the wise (or should I say Fool ?) investments.
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