# CGT



## roofus (11 November 2004)

Anyone here interested in avoiding/beating the ATO in regards to CGT


----------



## Mofra (11 November 2004)

Roofus,

I've read your posts in the other thread regarding having your trading income classified as gambling income - interesting challenge, but I have to ask the obvious question - how much would it estimate it will cost you in legal fees (assuming you win the case) to avoid paying CGT? Like many in the market, I immediately thought of the risk vs reward scenario   

Good luck,

Mofra


----------



## roofus (11 November 2004)

Mofra- the costs involved are substantial, but only if you lose. The repercussions for the Australian Government are huge. No more CGT on any investments that involve risk, even property wouldnt be taxable as there is no guarantee that your "investment" will go up, this has been shown recently. The only real investments that would attract tax are term deposits, however even this is subject to review as in the 1936 Tax Act, interest is not considered income unless you are in the business of lending money. The ATO twists that section to now say that it is "passive income". But it is in black and white in the '36 Act ( the '97 Act being a virtual copy) that interest doesnt form the taxpayers income...

The above arguement doesnt even touch on what the "rules" of taxation state,ie. that receipts to be declared income must come under the definition of ordinary concepts.. Ive got case law that blows that arguement out of the water...


----------



## baglimit (11 November 2004)

o.k. just to ensure i am understanding - will this tax discussion be 'fighting your obligations in regards to cgt, or a general war against a lot of ato rulings and hoping to change them. if the later i wish you well, but dont send me the bill. if the former, i dont wanna see the bill either, but at least you could mount an argument and get plenty of support. but i dont believe success is imminent. just a quick thing on 'gambling' - wagering, pokies, lotteries, casinos etc winnings are the result of various levels of chance - you do not have any input direct or indirect into how the results will be derived, therefore its gambling. stock market trading is the ownership , repeat ownership in various forms of shares, derivatives, etc etc,  of companies that your representatives, ie directors, utilise on behalf of the company in efforts to make profits for you. therefore you are not gambling, you are using your rep (directors) to make business decisions in order to make money/income, whether that be thru capital gain or dividend, regardless of term of ownership.
this is a generalised adaptation of the ruling - go seek the official version from the ato if you like.


----------



## GreatPig (11 November 2004)

Roofus,



> No more CGT on any investments that involve risk



At least not until the government could rush through a change to the tax laws .

GP


----------



## roofus (12 November 2004)

GreatPig- The only answer for a legislation change would be to make gambling taxable.. However even this would not work either as that would mean mean that all betting forms,lotto,keno,horses,dogs,casino,pokies would now also fall under that umbrella and people would be able to claim deductions from those 

baglimit- you make a fair arguement but it is flawed. you say yourself that "you do not have any input direct or indirect into how the results will be derived, therefore its gambling". And then state that "directors, utilise on behalf of the company in efforts to make profits for you".  so what your saying is that you still have no input, unless your a director.  Gambling all comes down to the happening of an unknown future event. Add to this the element of monetory gain and you have a gamble.
I am well aware of the ATO's numerous opinions towards gains, but what im challenging has never been attempted before. This case will set precedent. All other tax office disputes revolve around deduction disputes


----------



## baglimit (12 November 2004)

roofus - i got sick of typing and didnt think i had to explain more - but here goes - directors are your ELECTED representatives in a company - you vote for them to represent you in the decisions made by the company, that you partly own. does that clear it up.


----------



## baglimit (12 November 2004)

great pig - further to your gambling info, the brits do it hard - they either pay a tax when they have the bet (a fixed percentage) or pay the same percentage on the winnings - the later is naturally a larger amount therefore a larger tax. of course here the tab's take out on average 16% from all betting pools and hand out the rest in dividends.


----------



## Lucstar (12 November 2004)

I have heard that if your classified as a stock trader, you have forget about paying cgt.


----------



## Mofra (13 November 2004)

Lucstar,

My understanding is that stock _investers_ pay CGT whilst _traders_ pay income tax on their winnings.

I'm sure someone else with a more thorough knowledge of tax law can provide a more succinct reply.

Cheers


----------



## roofus (14 November 2004)

bag limit- "directors are your ELECTED representatives in a company". really, I didnt know that  . Just curious, did you have a bet on the Melbourne Cup? I ask this because from your rational, if you were to have given me your money to bet with (as your rep.) you would not have been "gambling" on the race.

Mofra- Even in your reply you use the word "winnings". The actual classifications are share trader and share holder. the tax implications are -

A share holder is a person who holds shares for the purpose of earning income from dividends and similar receipts. This person's position may be briefly summarised as:
	-  the cost of purchase of shares is not an allowable deduction, but is a capital cost
	-  receipts from the sale of shares are not assessable income - however any net profit is subject to capital gains 
                tax
	-  a net loss from sale of shares may not be offset againsgt income from other sources, but may be carried 
                forward to offset against future capital gains made from the sale of shares
	-  costs incurred in buying or selling shares are not an allowable deduction in the year in which they are incurred, 
                but are taken into account in determining the amount of any capital gain
	-  dividends and other similar receipts are included in assessable income, and
	-  costs (such as interest on borrowed money) incurred in earning dividend income are an allowable deduction at 
                the time they incurred

A share trader is a person who carries out business activities for the purpose of earning income from buying and selling shares. This person's position may be briefly summarised as:
	-  receipts from the sale of shares constitute income
	-  purchased shares would be regarded as trading stock
	-  costs incurred in buying or selling shares are an allowable deduction in the year in which they are incurred, and
	-  dividends and other similar receipts are included in assesable income.


----------



## satriani1 (29 March 2015)

Hello,

I want to move to Australia in a few months. Can you tell me how I could avoid to pay 45% Personal Income Taxes from capital gain when I cross 180k AUD of profit? Usually i don't hold shares for more then 12 months and I invest over the world. 

I would appreciate a response from you


----------



## McLovin (29 March 2015)

Incorporate. Company tax is flat 30%.


----------



## satriani1 (29 March 2015)

McLovin said:


> Incorporate. Company tax is flat 30%.



But when you pay yourself a dividend you still need to pay Personal Income Tax. So it is even worse.
Is there any other way?

What kinds of solutions are offer by Trust/Hedge Funds. Is there some kind of fund which offer deferred tax ?


----------



## McLovin (29 March 2015)

satriani1 said:


> But when you pay yourself a dividend you still need to pay Personal Income Tax. So it is even worse.
> Is there any other way?




The dividend you pay yourself will be franked.


----------



## satriani1 (29 March 2015)

TBO I tried to understand this dividend franked and ask some people about this but I'm still not sure If I understood it.

So.. 

a) My company made 500k AUD profit. I need to pay 30% as CIT. So now I have 350k AUD. Now I want to give myself dividend of 350k AUD. After company gave me 350k AUD I need to pay Personal Income Tax 30,3% to 180k AUD and 45% over 180k AUD. So It is 131,04k AUD of tax. So I wil have only 218,96k AUD. 
Of course If I wouldn't pay myself dividend every year and earn much more then 500k It probably be better to deferred tax then pay 40-45% of PIT every year. Also I could hire myself as CEO and pay myself income under 37k AUD with 9,7% PIT.

b) My company made 500k AUD profit. I need to pay 30% as CIT. So now I have 350k AUD. Now I want to give myself dividend of 350k AUD. It is 131,04k AUD of PIT, but company have already paid 150k AUD so I could have refund from ATO of 18,96k AUD (150-131,04).

Which one is true?


----------



## McLovin (29 March 2015)

Your company earns $500k. It pays 30% tax, leaving $350k after tax.

You pay yourself a cash dividend of $350k. For tax purposes you are considered to have received a gross dividend of $500k. Personal income tax on $500k is ~$198k. The company has already paid $150k, so your personal tax bill on the $350k will be $48k. Of course if you use a trust and have beneficiaries you can spread this amount around to where you can actually receive franking credit refunds.


----------



## satriani1 (29 March 2015)

OK, Thanks. I have got 3 more questions.

1) If I would'nt pay myself 350k AUD as a dividend could I collect this refunds to the next... let's say 10 years?

2) Look at this situation: I earn 500k AUD. I'm CEO in this company and I pay myself 80k AUD. I pay 21,9% ~ 17,52k AUD as a PIT and 30% from 420k ~ 126k AUD as CIT. So It is 143,52k AUD ~ 28,24% effective CIT. Is this true? If I want to withdraw myself a dividend in next years I will need to pay ~198k-143k=55k PIT ?

3) "Of course if you use a trust and have beneficiaries you can spread this amount around to where you can actually receive franking credit refunds.". Please, could you tell me a little more about this solution?


edit: one more
4) I hold company where I have 1% of stake and this company pays 50kk AUD CIT. I had paid for this shares 1kk and the price gone up in the same year of 50%. If I sell this shares with 500k AUD of profit, do I need to pay any tax? Can I use franking credit refunds even If I'm minority shareholder ?


----------



## McLovin (29 March 2015)

satriani1 said:


> OK, Thanks. I have got 3 more questions.
> 
> 1) If I would'nt pay myself 350k AUD as a dividend could I collect this refunds to the next... let's say 10 years?




I'm not sure what you're asking, sorry.



satriani1 said:


> 2) Look at this situation: I earn 500k AUD. I'm CEO in this company and I pay myself 80k AUD. I pay 21,9% ~ 17,52k AUD as a PIT and 30% from 420k ~ 126k AUD as CIT. So It is 143,52k AUD ~ 28,24% effective CIT.




No. Company income tax is 30%. It's always 30%. You've paid yourself a wage which has reduced the company's taxable income not its effective rate. But your calculation as to how much tax you and the company would pay is correct.



satriani1 said:


> 2)If I want to withdraw myself a dividend in next years I will need to pay ~198k-143k=55k PIT ?




No. To take the remaining $294k as dividend you will pay tax on a grossed up dividend of $420k. That's $162k in tax but you will have franking credits amounting to $126k. So net tax paid by you will be $36k (assuming you took it in one year)



satriani1 said:


> 3) "Of course if you use a trust and have beneficiaries you can spread this amount around to where you can actually receive franking credit refunds.". Please, could you tell me a little more about this solution?




Trust owns the company. Company pays dividend to trust. Trust can distribute the dividend to beneficiaries in the most tax effective manner. If you're the only bene then the tax will be the same as if you owned the company directly.


----------



## satriani1 (29 March 2015)

That doesn't sounds good tbh. It's looks like it isn't easy to be an investor in Australia. The only way to reduce taxes is invest from a personal acount and hold shares for more then 12 months right? if you earn from price changing. There is 50% discount of CGT right?



McLovin said:


> I'm not sure what you're asking, sorry.



If I paid 150k CIT in 2010 and after this year I have no more earning in my company. In 2015 I want to pay myself a dividend of 350k. Do I still have this franking credits from 2010? Do I need to pay 48k or 131k as PIT in 2015?


Another question: 
I have 1% of stake of company XXX which paid 5kk CIT and pay no dividend.
I have 100% of company YYY which paid 150k CIT and pay me 350k dividend.
Do I need to pay 48k PIT or can I use franking credits from XXX company ?


and one more:
Is there some other cost of wage besides PIT?


----------



## cropcos (29 March 2015)

satriani1 said:


> That doesn't sounds good tbh. It's looks like it isn't easy to be an investor in Australia. The only way to reduce taxes is invest from a personal acount and hold shares for more then 12 months right? if you earn from price changing. There is 50% discount of CGT right?
> 
> 
> If I paid 150k CIT in 2010 and after this year I have no more earning in my company. In 2015 I want to pay myself a dividend of 350k. Do I still have this franking credits from 2010? Do I need to pay 48k or 131k as PIT in 2015?
> ...




if you are a longer term holder of shares / greater than 12 months then yes being held by an individual is more tax effective than a company which does not benefit from the 50% cgt discount, even if you as an individual are already on the top tax bracket (income over $180k)

e.g. tax on $50,000 capital gain (held for 12 months or more)
2015 yr individual tax on $50,000 cap gain = $11,750 (50000 less 25000 discount, 25,000 x 47% top rate)
2016 yr individual tax on $50,000 cap gain = $12,250 (as above, 25,000 x 49% top rate)

2015 yr company (30%) = $15,000 (50,000 x 30%)
2016 yr company (28.5%) = 14,250

bear in mind the medicare levy for individuals has increased to 2% from 1.5% which makes the top rate now 47% (45 + 2). And from 1 july 2015 the temporary budget repair levy of an additional 2% is added to those with taxable incomes above $180k, this temporary levy runs for three tax years. So the effective top rate from 1 July 2015 is 49% on income above $180,000. 

it is also proposed the corporate tax rate for companies with less than $5 million taxable income will reduce from 30% to 28.5% from 1 july 2015.

the franking credits you have in your company from 2010 or prior years are retained for use in future dividends paid by the company. however bear in mind if a dividend is paid in the next tax year when the corporate tax rate is reduced to 28.5%, your franking credit on the dividend paid to the shareholder is limited to 28.5%, even though the company may have paid 30% tax in the prior year on those retained earnings.  

Wages - if you pay wages from the company you are required to withhold tax as you pay from the gross wage and pay to the ATO once a quarter. On top of the wage you are required to pay superannuation guarantee of 9.5% of the gross wage once a quarter. So an $80,000 wage would require an additional $7,600 to be physically paid by the company into your superfund. If you pay yourself a dividend you can avoid the super.


----------



## So_Cynical (29 March 2015)

Found this today : Capital gains tax discount calculator for individuals - some new rules  If you were not an Australian resident for tax purposes after 8 May 2012 your discount may be reduced or you may not get a discount.

https://expertsystems.ato.gov.au/scripts/CA/Web/Default.aspx?PID=68&anchor=CGTDiscount#CGTDiscount


----------



## McLovin (29 March 2015)

satriani1 said:


> That doesn't sounds good tbh. It's looks like it isn't easy to be an investor in Australia. The only way to reduce taxes is invest from a personal acount and hold shares for more then 12 months right? if you earn from price changing. There is 50% discount of CGT right?




Trade through a trust with a corporate bene. You can stream franking credits where you want and utilise the CGT discount by streaming cap gains to natural persons. Most countries around the world tax asset trading (ie less than 12 months held) the way Australia does, ie as ordinary income not capital gains. You need to speak to an accountant.



satriani1 said:


> If I paid 150k CIT in 2010 and after this year I have no more earning in my company. In 2015 I want to pay myself a dividend of 350k. Do I still have this franking credits from 2010?




Yes




satriani1 said:


> Another question:
> I have 1% of stake of company XXX which paid 5kk CIT and pay no dividend.
> I have 100% of company YYY which paid 150k CIT and pay me 350k dividend.
> Do I need to pay 48k PIT or can I use franking credits from XXX company ?




The franking credits belong to the company until they pay a dividend at which point they are transferred to you on payment of a dividend. So, no is the answer.


----------



## VSntchr (29 March 2015)

McLovin said:


> You need to speak to an accountant.




This.
If your actually making the kind of money your referring to in this thread, then spending a few $k on a good accountant is going to be well worth it. It's not exactly costly from a business perspective when your looking at <1 or 2% of a years profits to get it all sorted. ASF is a good place to start to get basic info, but when taxation questions get complicated and it's going to be affecting your financial outcome in the order of 10's of thousands - it's clearly time to seek professional help.

FWIW tho, McLovin knows his stuff in this area from what I've seen


----------



## satriani1 (30 March 2015)

cropcos, So_Cynical, McLovin, VSntchr - Thanks 

As I said - It doesn't look good. I heard that ATO is very agressive and have strong CFC law, so offshore company probably wouldn't be a good idea.

Do you know how it look like in mutual funds/hedge funds? In many developed countries you won't avoid tax, but you can deferred taxes thanks to some kinds of funds. 

How do the private equity and venture capital companies work in AU? As a normal company? Or there is some special legal form for them? How about taxes?


----------



## blaze182 (18 April 2015)

roofus said:


> Mofra- the costs involved are substantial, but only if you lose. The repercussions for the Australian Government are huge. No more CGT on any investments that involve risk, even property wouldnt be taxable as there is no guarantee that your "investment" will go up, this has been shown recently. The only real investments that would attract tax are term deposits, however even this is subject to review as in the 1936 Tax Act, interest is not considered income unless you are in the business of lending money. The ATO twists that section to now say that it is "passive income". But it is in black and white in the '36 Act ( the '97 Act being a virtual copy) that interest doesnt form the taxpayers income...
> 
> The above arguement doesnt even touch on what the "rules" of taxation state,ie. that receipts to be declared income must come under the definition of ordinary concepts.. Ive got case law that blows that arguement out of the water...




I think you need to see an accountant, the law is very clear on the approaches taken to investment, trading and gambling, and it provides a very broad definition to help you identify. You will find, if you are a real trader or investor, you are subject to tax - period. If you take advice from the bartender, you'll be fine. 



satriani1 said:


> cropcos, So_Cynical, McLovin, VSntchr - Thanks
> 
> As I said - It doesn't look good. I heard that ATO is very agressive and have strong CFC law, so offshore company probably wouldn't be a good idea.
> 
> ...




Seek an accountant, there's a lot of ways to mitigate tax through intelligent setup and preparation.


----------

