# Capital Gains Tax



## iantony (20 September 2005)

If I sell shares, and then use the capital to re-invest immediately, must I pay capital gains tax?


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## tech/a (20 September 2005)

If you have made a profit yes.
If you held for 12 mths or more then the tax rate is 50% less.


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## Kauri (20 September 2005)

iantony said:
			
		

> If I sell shares, and then use the capital to re-invest immediately, must I pay capital gains tax?





   Try this page..especially thelinks on right hand side..  some examples there.. tells you what you need to do to qualify as share trader versus investor..   its a start..    

http://www.ato.gov.au/businesses/content.asp?doc=/content/21749.htm


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## Rockon2 (20 September 2005)

iantony said:
			
		

> If I sell shares, and then use the capital to re-invest immediately, must I pay capital gains tax?





Gday iantony  
The answer is yes you have to pay capital gains , BUT only if youve made a profit on the transaction, whether it be shares/ property etc, net of buying and selling costs.
And If youve held that share/property for more than 12 months this is reduced.
Example. The profit made, gets added to all your other income,  So if you earn say $50k per year net,( job ) you pay x tax. If you make an extra $50 k per year through say share trading, you now pay tax on $100k....

But if the $50k made was from
 a share trade that was held for more than 12 months, then you get a 50% reduction,,, so $50k times 50% = $25k + $50 job income = $75k you now pay tax on... 


AND 
The New tax rates are....

Taxable income
 Tax on this income

$0 – $6,000
 Nil

$6,001 – $21,600
 15c for each $1 over $6,000

$21,601 – $63,000
 $2,340 plus 30c for each $1 over $21,600

$63,001 – $95,000
 $14,760 plus 42c for each $1 over $63,000

Over $95,000 
 $28,200 plus 47c for each $1 over $95,000


The above rates do not include the Medicare levy of 1.5%.


So tax on $75k  taxable income = $19,800.... that = about 25%.

What you have to remember is that capital gains is NOT an extra tax.
Quote from ato web site ..........:Capital gains tax (CGT) is not a separate tax, but a component of income tax. This means that capital gains are taxed at the rate that applies as a result of the level of your other taxable income. 

IMO.. Capital Gains Is Not the "Big Bogey" , that its made out to be ( and never has been )....... Its made by people who dont know how it works.

And my finall advice is seek Professional advice...
And go to >>>>>>
http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm


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## freja (2 March 2006)

But what happens if you put 500 dollars on shares in a company and over a year later you put a further 250k on the same company and those shares are sold within a year, how does capital gains work then?


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## markrmau (2 March 2006)

freja said:
			
		

> But what happens if you put 500 dollars on shares in a company and over a year later you put a further 250k on the same company and those shares are sold within a year, how does capital gains work then?



Works on a last in, first out basis. ie 

2003 buy 10shares
2005 buy 500shares
2005.5 sell 510 shares.

Pay 100%cgt on 500 shares and 50%cgt on 10 shares.


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## Duckman#72 (2 March 2006)

markrmau said:
			
		

> Works on a last in, first out basis. ie
> 
> 2003 buy 10shares
> 2005 buy 500shares
> ...




Hi Guys

Yes in your example that is correct - however the taxpayer has got the ability to say which shares they are selling. It doesn't have to be on a FIFO or LIFO arrangement. Usually you would just choose the one that gave the best tax result.

Using Waynes example - lets say that you only sell 10 shares in 2005.5. You would elect for them to be the ones purchased in 2003.

Duckman


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## GreatPig (3 March 2006)

My portfolio manager automatically sells the ones with the highest purchase price first, as that minimises the gain or maximises the losses. For my trading account, which doesn't get CG anyway, I think that's the best approach.

However, if the 50% CGT discount is an issue, then it may be better to sell the longest-held ones first - although if neither lot have been held for more than 12 months, then I think sell the most recently-bought ones first.

This is just my understanding and does not consitute advice.

GP


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## dutchie (1 April 2006)

Holding shares for a year Vs trading in and out of them in less than a year.

If you hold shares for a year or more and then sell them then the CGT on the capital gain is discounted by 50%.

For example:

Say you held a certain share for over a year and then sold it with a capital gain of $1,000  i.e. Selling Price - Buying price= capital gain

Then the capital gains tax you would pay would be on 50% of that amount.

50% of $1,000 = $500

Your actual tax would depend on your marginal tax rate:
(15c in the dollar = 15% = 0.15   etc )

If:

15% -> then tax  = 15% x $500 = $75;   Profit = $1,000 - $75 = $925 
30% -> then tax  = 30% x $500 = $150;  Profit = $1,000 - $150 = $850
42% -> then tax  = 42% x $500 = $210;  Profit = $1,000 - $210 = $790 
47% -> then tax  = 47% x $500 = $235;  Profit = $1,000 - $235 = $765

If instead of holding them for a year you bought and sold them during a year (i.e. you never held them for 12 months straight) and made capital gains totally $1,000, then you would pay capital gains tax of:

marginal tax rate:

15% -> then tax  = 15% x $1000 = $150;  Profit = $1,000 - $150 = $850 
30% -> then tax  = 30% x $1000 = $300;  Profit = $1,000 - $300 = $700
42% -> then tax  = 42% x $1000 = $420;  Profit = $1,000 - $420 = $580 
47% -> then tax  = 47% x $1000 = $470;  Profit = $1,000 - $470 = $530


Comparing these figures gives the following results:

For the Long Term Hold (LTH) (1 year min.) Vs in and out a number of times within a year (STT).

To be equivalent you need to multiply the LTH profit rate by:

At marginal rates:

*15% - 1.088
30% - 1.214
42% - 1.362
47% - 1.443*

At a marginal rate of 15%:

If you have made a capital gain of 10% on your capital by the LTH method  you would have had to make 10% x 1.088 = 10.88% by short term trading (STT) on that same amount of capital for your profits to be the same.

Say you invested $10,000  for a LTH and made 10% capital gains.

$10,000 x 10% = $1000
CGT = 15% x (0.5x$1000) = $75
Profit = $1000 - $75 = $925**

If you STT you would have had to made *10.88%* yield for the profit to be the same:

$10,000 x 10.88% = $1088
CGT = 15% x (100% x $1088) = $163
Profit = $1088 - $163 = $925**

In summary:

For STT to be more profitable than LTH the yeild percentage has to be:

Margin rate:

15%  - 1.088 times better
e.g. LTH yield 20%  then STT must be better than 20% X 1.088 = 21.76%

30%  - 1.214 times better
e.g. LTH yield 20%  then STT must be better than 20% X 1.214 = 24.28%

42%  - 1.362 times better
e.g. LTH yield 20%  then STT must be better than 20% X 1.362 = 27.24%

47%  - 1.443 times better
e.g. LTH yield 20%  then STT must be better than 20% X 1.443 = 28.86%

These calculations do not consider other incomes, dividends etc.

Hope thats not double Dutch for anyone!

Cheers

Dutchie


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## bullmarket (1 April 2006)

Hi to whoever is reading this 

Just a quick reminder (in case I missed it being mentioned earlier) in addition to the discussion that has gone on so far that tax rules vary depending on whether you have been classified as a trader or investor by the ATO.

eg....I believe traders can claim unrealised capital losses whereas investors cannot and I think the 50% discount on CGT does not apply to traders.

So if you 'trade' a part of your portfolio and 'invest' another part it can get messy unless you have very good and accurate records.

Anyway, just food for thought and something to keep in mind when looking at various tax options......best advice I can give is to talk to your tax adviser or ATO directly (they don't bite if you have nothing to hide )

see you in a week or so 

bullmarket


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## crackaton (1 April 2006)

dutchie said:
			
		

> Holding shares for a year Vs trading in and out of them in less than a year.
> 
> If you hold shares for a year or more and then sell them then the CGT on the capital gain is discounted by 50%.
> 
> ...





thx dutchie. But one also needs to consider brokers fees and gst. So in reality I suspect the total % would have to be a lot higher. Plus other associated costs, i.e. time watching the market etc.


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## Duckman#72 (1 April 2006)

bullmarket said:
			
		

> eg....I believe traders can claim unrealised capital losses whereas investors cannot and I think the 50% discount on CGT does not apply to traders.




That's right Bullmarket. One of the reasons it gets confusing is that if you are a trader you don't make captal gains or losses. They are simply business gains or losses. 

Don't forget you need to keep track of your "opening" and "closing" stock balances at 30 June each year.

Bullmarket is right - it can get messy unless you have a good record keeping system. Certain computer software programs can be more troublesome for tax record than you would believe.

Duckman


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## Prospector (2 April 2006)

And also remember too that if you are trading in your Super Fund the CGT is 15% for 12 months and 10%   after that.

Currently I trade in three different entities and they each have different CGT calculations - Personal (as previously discussed) Super Fund (as above) and through a Company that buys and sells shares with its excess money.  The latter never gets any CGT relief regardless of how long the shares have been held, and is alway taxed at 30%!


What is our taxation system coming to!   :swear:


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## nizar (2 April 2006)

I heard that if u sell ur shares and put it into super fund, u pay no tax on the gains, and u only pay super tax of 15% when it is withdrawn from there... 

Thoughts ?


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## Prospector (2 April 2006)

Hi Nizar
I dont think it is as simple as that, but if you make undeducted super contributions then this may reduce your tax bill  

This is one area you must seek your accountant's advice.

BTW, when you finally get to the age when you can draw down on your super, your super fund does not pay any CGT anymore.  So if you can hold on to the assets of your super fund until then, there are huge tax advantages, but this may not be the best result if an investment is starting to go bad.


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## crackaton (2 April 2006)

Prospector said:
			
		

> And also remember too that if you are trading in your Super Fund the CGT is 15% for 12 months and 10%   after that.
> 
> Currently I trade in three different entities and they each have different CGT calculations - Personal (as previously discussed) Super Fund (as above) and through a Company that buys and sells shares with its excess money.  The latter never gets any CGT relief regardless of how long the shares have been held, and is alway taxed at 30%!
> 
> ...



Hi prospector. The company you mentioned, has it been set up just for trading or is it a company conducting other business? The 30% tax sounds good compared with other cgt


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## Prospector (2 April 2006)

Hi Crackaton
The company we trade in is a consulting company that over the years we have tended to leave money in to build it up, rather than take it out as salary/salary sacrifice.  SO over a period of about 10 years we have some excess cash that I use rather than just let it sit in the bank!

Mr P gets a tad frustrated when I make more money than he has in a consulting day's fees just through share trading


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## laurie (2 April 2006)

Rang the ATO and asked them this question:

I hold shares in a company called XYZ and have a stapled security attached to the FPO and must be attached for a period of 12 months and after 12 months they become unstapled so we end up with XYZ & XYZO my question is can I sell the options and claim the 50% discount as I held for 12 months or do I need to hold the options for a further 12 months? hmmmmmmm said the bloke.....hang on.......hang on ....... your'e there! ....yes ......I think you need to seek finanicial advise....I said what!! :swear: FMD it's not the first time I had trouble with the ATO what they are saying is  "We don't know the answer BUT GET IT WRONG AND YOU ARE IN TROUBLE!"

cheers laurie


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## Duckman#72 (2 April 2006)

nizar said:
			
		

> I heard that if u sell ur shares and put it into super fund, u pay no tax on the gains, and u only pay super tax of 15% when it is withdrawn from there...
> 
> Thoughts ?




No Nizar - that is not correct. Some people could do that - eg a self employed person. However there is no legislation designed to allow tax relief for share investors who sell shares and roll the capital gain into a superannuation fund.

As I said  - it is possible that you could take advantage of tax deductions for making contributions into super but it is has nothing to do with the scenario you mentioned. There are other factors you need to consider - ie are you receiving employer sponsored superannuation.  

Regards
Duckman


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## Prospector (2 April 2006)

laurie said:
			
		

> "We don't know the answer BUT GET IT WRONG AND YOU ARE IN TROUBLE!"
> 
> cheers laurie




I am sure everyone has had similar experiiences with the ATO.  I asked them the simple question "Does the CGT on the sale of an investment property count as Income when submitting an annual Tax return"  - the reason being I wanted to modify (reduce) an IAG but as we had incurred a CGT I didnt want to risk understating my income and therefore be fined!

Well, I received a three page letter back, with all sorts of gobbledeegook but they never answered my question.  All I wanted was a simple 'Yes' or 'No'


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## crackaton (2 April 2006)

Prospector said:
			
		

> Hi Crackaton
> The company we trade in is a consulting company that over the years we have tended to leave money in to build it up, rather than take it out as salary/salary sacrifice.  SO over a period of about 10 years we have some excess cash that I use rather than just let it sit in the bank!
> 
> Mr P gets a tad frustrated when I make more money than he has in a consulting day's fees just through share trading




Great tactic. hope you keep make money!!


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## sti396 (4 April 2006)

Ok, 

there is capital gains tax. So what happens if you make a loss. Does this loss come off your yearly income in the same way that a profit adds to your income ?

Phil


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## Duckman#72 (4 April 2006)

sti396 said:
			
		

> Ok,
> 
> there is capital gains tax. So what happens if you make a loss. Does this loss come off your yearly income in the same way that a profit adds to your income ?
> 
> Phil




Hi Phil

If you have made a capital loss (ie you are an investor) you are only able to offset against capital gains. If you don't have any capital gains in the current year, the losses will carry forward indefinately to a year a capital gain is made. This is why it is very important to where possible match capital losses with capital gains in a financial year.

By the way - the capital gain gets offset against the full 100% of the capital gain - not just applied against the 50% discounted component.

Duckman


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## Odduna (4 April 2006)

Prospector said:
			
		

> I am sure everyone has had similar experiiences with the ATO.  I asked them the simple question "Does the CGT on the sale of an investment property count as Income when submitting an annual Tax return"  - the reason being I wanted to modify (reduce) an IAG but as we had incurred a CGT I didnt want to risk understating my income and therefore be fined!
> 
> Well, I received a three page letter back, with all sorts of gobbledeegook but they never answered my question.  All I wanted was a simple 'Yes' or 'No'




What was the answer to the simple question?
and what the hell is IAG?


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## Prospector (4 April 2006)

That was my point Odduna, they didnt give me an answer - they simply gave me ruling after ruling about the penalties if I understated, but never told me whether CGT was counted as income in a quarter given there was the potential for a capital loss by the time the end if the FY rolled in.

IAG - having a blonde moment - IAS - Income Activity Statement - previously known as provisional tax!


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## Odduna (4 April 2006)

Prospector said:
			
		

> That was my point Odduna, they didnt give me an answer - they simply gave me ruling after ruling about the penalties if I understated, but never told me whether CGT was counted as income in a quarter given there was the potential for a capital loss by the time the end if the FY rolled in.
> 
> IAG - having a blonde moment - IAS - Income Activity Statement - previously known as provisional tax!





Try this link, should answer enquiry.

http://www.ato.gov.au/businesses/content.asp?doc=/content/6003.htm&page=10&H10

If link didn't work, answer is no. CGT is not used towards the 'instalment income'. The PAYG instalments you pay on your IAS is based on instalment income.

The penalty for understatement for IAS only applies understating your instalment income and subsquent amount of pre paid tax. 

Thus, CGT does not affect penalty calculation

Pls note, i am assuming you are not in the business of property development nor a share trader etc


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## Prospector (5 April 2006)

Odduna said:
			
		

> Try this link, should answer enquiry.
> 
> http://www.ato.gov.au/businesses/content.asp?doc=/content/6003.htm&page=10&H10
> 
> ...




Really?  Well why couldnt they say that!     I paid it at their 'suggested' rate because I wasnt keen to risk the penalty, but will check out your link and think again - another one is due at the end of April.  The situation that gave rise to the initial provisional tax situation (payment from a Trust account) no longer exists, and our other income is PAYG.
Thankyou


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## Prospector (5 April 2006)

Gosh, thanks for that clarification Odduna, I have just spoken with someone at the ATO who confirmed your opinion, and is sending out written confirmation.  Oh well, I have only made one payment (Feb 28th) so that will be held in credit for the next financial year.  The reason CGT is not included as Estimated Income is that it is considered a 'one-off' - which, other than a couple of share sales, it is for us (property).  Now I just have to remember not to buy any more diamonds with the money I will now owe come March next year!


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## Duckman#72 (5 April 2006)

Prospector said:
			
		

> Gosh, thanks for that clarification Odduna, I have just spoken with someone at the ATO who confirmed your opinion, and is sending out written confirmation.  Oh well, I have only made one payment (Feb 28th) so that will be held in credit for the next financial year.




Hi Prospector

Just request a refund of PAYG on your next IAS. You are able to receive a refund for PAYG paid during the year if you have overcalculated.

Duckman


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## Odduna (5 April 2006)

laurie said:
			
		

> Rang the ATO and asked them this question:
> 
> I hold shares in a company called XYZ and have a stapled security attached to the FPO and must be attached for a period of 12 months and after 12 months they become unstapled so we end up with XYZ & XYZO my question is can I sell the options and claim the 50% discount as I held for 12 months or do I need to hold the options for a further 12 months? hmmmmmmm said the bloke.....hang on.......hang on ....... your'e there! ....yes ......I think you need to seek finanicial advise....I said what!! :swear: FMD it's not the first time I had trouble with the ATO what they are saying is  "We don't know the answer BUT GET IT WRONG AND YOU ARE IN TROUBLE!"
> cheers laurie




A share in XYZ and an option in XYZ which together constitute the stapled security, remain seperate CGT assets for the purposes of section 108-5 of the ITAA 1997 despite their stapling. The fact that the securities are stapled together (or attached to each other) does not have an impact on their status as seperate CGT assets such that they are deemed to be one CGT asset.

what this means: the 12 month rule applies from when you acquired the asset, not from the time when they became unstapled.

Also a side note:

The effect of the stapling can be described as follows:

An accepted principle of law that the constitution of a company is a contract between shareholder and shareholder and between each shareholder and the company. The bundling (otherwise known as stapling) is a condition of the contract. The unbundling (unstapled) merely has the effect of dissolving a clause in a contract, and this does not per se have a CGT consequence.

Thus the dissolution of the stapling therefore constitutes no more than a varying of contractural arrangements in place among shareholders and between shareholders and the company, and amoung option/s etc holders. It does not change the underlying nature of the assets that are stapled.

Hope this helps...... 

Now if only i knew how the 45 day really works....


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## Odduna (5 April 2006)

Prospector said:
			
		

> Gosh, thanks for that clarification Odduna, I have just spoken with someone at the ATO who confirmed your opinion, and is sending out written confirmation.  Oh well, I have only made one payment (Feb 28th) so that will be held in credit for the next financial year.  The reason CGT is not included as Estimated Income is that it is considered a 'one-off' - which, other than a couple of share sales, it is for us (property).  Now I just have to remember not to buy any more diamonds with the money I will now owe come March next year!




I have this sinking feeling that the ATO officer you spoke to is going to print that page off their website and send it out to you as their written confirmation. 

Let me know if that's the case


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## Riles (10 April 2006)

Hi all,
does anyone know if you can reduce the amount of capital gain by the CPI?

I have shares held for over 3 years and may sell soon. I thought I heard somewhere that I could take into account and deduct the CPI for each year held?


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## Prospector (10 April 2006)

You can no longer claim CPI for any assets acquired after 21st September 1999.  You can use the 50% discount method if you have had them over 12 months and they are in your name.

This link tells it all:  

http://www.ato.gov.au/individuals/c...001/002/026/016/002&mnu=5060&mfp=001&st=&cy=1


Cheers


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## Riles (10 April 2006)

Thanks for that.


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## NettAssets (30 June 2006)

Will get my accountants advice on this when I can get hold of him,but:

Is the CGT handling of company issued options the same as for call ETO's or are they classed as shares in a trade where they are not exercised
John


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## GreatPig (30 June 2006)

I think that can depend on the nature of the company issued options and whether you paid for them or got them for free. If they come under a special employee share scheme, then they may get different tax treatment.

You'd need to check with your accountant, but the company accountant should be able to give you a good idea as well.

GP


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## NettAssets (30 June 2006)

Hi GP 
They are just MMNO traded on the exchange bought about a month ago, In profit today and I was wondering whether to sell them today to offset some CGT losses or whether the sale isn't a CGT event anyway.
John


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## GreatPig (30 June 2006)

Sorry, but I'm not sure how options are handled tax-wise.

But I'd guess that selling would almost certainly be a CGT event - assuming you're not classed as a trading business.

GP


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## NettAssets (30 June 2006)

Yeah - I think that is probably the case with Company options - I think they are classed as equities for CGT purposes I cant find it stated specifically in the ATO rules.
With buying and selling ETO's (exchange traded options) it is not a CGT event. the purchase is simply a deductable expense and the sale income - it gets a bit more complex when options are exercised apparently but I haven't got in that position yet.
John
PS this was the advice I got in my position as a self employed contractor. I wouldn't take it as fact without a check.


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## wipz (13 November 2007)

Kauri said:


> Try this page..especially thelinks on right hand side..  some examples there.. tells you what you need to do to qualify as share trader versus investor..   its a start..
> 
> http://www.ato.gov.au/businesses/content.asp?doc=/content/21749.htm




Why on earth would you want to "carry on the business of share trading"?
Your gains will be on revenue account and you will not be entitled to 50% CGT discount - you'd be screwing yourself over.
Capital gains can still be offset by revenue losses, so really I dont know why you'd bother?
The only thing i can think of is if you were making real big losses from share trading, and needing to offset the loss with other revenue sources. But in this case you'd just stop trading wouldnt you?


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## cutz (22 December 2008)

Hi everyone,

I was after an opinion on transferring shares into a US based brokerage account, I heard this could be a pain in the a***.

My plan is to sell my stocks from my Australian account and simultaneously buy the same stock via the US account; the intension is to avoid a CGT event. I’ve also got a couple of stocks that are in the red so the ATO won’t allow me to claim a loss because it looks like a wash sale, and I’m happy with that because my intent is not to wash.

Therefore if I’m not claiming losses and all the sell/buys are done at the same price surely the ATO will view it as a direct transfer.

I’m going to see my accountant in the new year before I action this plan but I would be interested to here what you guys think of this.


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