# Capital gains and shares



## Goin' For Broke (5 February 2006)

If I understand it correctly, super is basically tax free, apart from the 15% levied when you first put it in (up to a certain amount), and property has a captital gains tax on 50% of your captital gain which is then taxed at your marginal rate. But what about shares? Are they taxed as a captital gain when you cash them in? I'm not talking about dividends, just when you want to cash out. If this is true, all else being equal, wouldn't property be much more advantageous in terms of tax? Can someone please clarify? Thanks.


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## Prospector (5 February 2006)

*Re: Captital gains and shares*

HI
First rule - you must consult a financial and taxation adviser before making any decisions.

Ok, my understanding is that when you make a capital gain it is offset against any capital loss, and any 'profit' is taxed at the marginal rate, which for Super is 15%

You also pay tax on any other profit that the Super Fund earns - eg from dividends.

However, if you are at the age where you are starting to draw down your super (I dont know the exact name for this as we arent there yet!) any capital gain then becomes tax free!  So it is best to defer the realisation of any major capital gains until you are at this stage.

If you sell land for a profit then you will still pay CGT just the same as shares.

Second rule is the same as the first: First rule - you must consult a financial and taxation adviser before making any decisions.


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## Goin' For Broke (5 February 2006)

*Re: Captital gains and shares*

Thanks prospector.
Now I have another question. First I have to clarify that I as yet have not entered the stock market in any shape or form apart from my super. I was considering getting my feet wet by starting a managed fund, then I started reading these forums and learning from investopedia and the ASX site and a few books. The more I learn the more I realise I don't really know anything!
I am in no position to be a 'trader', but would like to at least become an investor ie long term stuff. Then I thought maybe an index fund or an ETF would be better for me because of the lower fees.
Now here's my question; if I were to kick off an index fund and I wanted to make monthly contributions to help it grow, do I have to pay broker fees each time? Small contributions would be eaten up by fees, true? Is there a way to acheive this form of investment without the broker fees apart from a managed fund? I realise this is very basic stuff but a person has to start somewhere! I appreciate all comments, Thanks.


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## ob1kenobi (6 February 2006)

*Re: Captital gains and shares*

Welcome to ASF. Firstly on CGT. Any class of asset, when sold at a profit generally attracts CGT. If you hold the asset (including shares) for more than 12 months then a 50% discount generally kicks in meaning it reduces to 25%. I would urge you to check the ATO site and their material on CGT.

Regarding managed funds. That depends on your financial situation, amount to be outlayed, financial goals, etc. I have nothing against managed funds, however the best managed funds at the end of last year returned about half of what could have been made through direct share investment. It was reported in the Telegraph and from memory AFR as well. The inverse is of course possible, direct share investment means you expose yourself to the possibility of a direct lost, so just as you could have gained by 20%, you could also lose by 20%.

Talk to a financial adviser or tax accountant about your circumstances. Then decide.

Regarding not knowing much about it. Join the club. Everyone on this forum comes here to learn. It's not that we don't know what to do but we know that it's important to keep learning.

Good luck!


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## Smurf1976 (6 February 2006)

*Re: Captital gains and shares*

I AM NOT A LICENSED ADVISOR. THE FOLLOWING IS MY UNDERSTANTING ONLY.

Does your question relate to shares held as part of a self managed super fund or just holding shares as an ordinary investor?

Assuming it's the latter, yes you have to pay Capital Gains Tax (CGT) when you sell the shares (assuming you sell at a profit). You can deduct from this the cost of the investment - eg brokerage. If you hold the shares for more than 12 months then you only pay CGT on 50% of the profit.

Capital gains can be offset against capital losses but you can't have a negative capital gains amount on your tax return. So if you make $10,000 profit on one lot of shares and sell another at a $20,000 loss during the same financial year then you can only reduce that to zero capital gain for tax purposes. You can't claim a $10,000 loss BUT you can carry this loss forward (in full) to future income years to offset against future capital gains. There's a box on the tax return form where such amounts being carried forward are to be shown.

Whether or not property is better than shares in terms of tax I really don't know. Getting off the topic of tax for a moment... To be worried about tax you need to make a profit in the first place and with the current state of the property market in my opinion you're going to be taking some very big risks there. Australian property is over valued by virtually any measure with even the likes of Hobart (not to mention Sydney...) receiving _international_ attention on the subject at a time when prices are reported to be falling in parts of the USA, UK and in Sydney. Certainly risky IMO but I could be wrong.

I suggest you give the ATO (tax office) a call. They will answer generic questions such as the ones you have free of charge and they're the experts after all. If you want specific personal advice and are going to invest on that basis then it's worth paying for professional advice IMO. But the ATO will tell you most if not all of what you need to know as long as you know what questions to ask.


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## Prospector (6 February 2006)

*Re: Captital gains and shares*

Have to agree with the other two posters here.  I havent gone in to Managed Funds  because I feel that I am able to research and spend more time on this because it is my future so I am in a better position to make decisions.  And so I hold direct shares and actually am quite chuffed with my achievements so far.  I read forums like this for ideas and then do my own research using charts and Moving averages and volumes to see if I want to plunge in.
I also hold property (land) in my SMSF because although I get no income from land, our return has been 120% over 4 years - this in a declining land market, although in Adelaide this has been better than the Eastern states.  Being prime waterfrond land also helped!    We will probably sell it when we start to draw down on our Super (maybe 5 years time) so we wont pay the CGT.  We may sell it at market rate to ourselves too, if we can afford it!  At least we wont have to pay stupidly high Real Estate Agent commission if we did that  

I also trade in a company - there is no 50% deduction on these if held over 12 months - it is straight out 30% whenever you sell!

These forums are brilliant for generating ideas and Learning!

Good luck!


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## rawb (6 February 2006)

*Re: Captital gains and shares*

Simple answer for shares CGT.

If shares are held for less than 12months the CGT = 30%


If shares are held for more than 12months the CGT = 15%


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## Prospector (6 February 2006)

*Re: Captital gains and shares*

No, I think that it isnt like that at all in any scenario.  If you trade in your company (Pty Ltd), the CGT is always 30% even if you have held them for years.  In super funds, it is always 15% unless you are drawing down a pension from it.  Personal shares - depends on your income and length of time holding.

But of course, contact your financial adviser and/or the ATO before making any decisions.  Because there is a lot of misunderstanding out there myself included


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## Goin' For Broke (6 February 2006)

*Re: Captital gains and shares*

Ok thanks for that. I am not acting on behalf of a company, or even my super for that mater, just as a regular joe. So it's like any asset, held more than a year, then 50%. Right right, i'm supposed to see a financial adviser. I've seen their fee schedules!!!!!!!!! I am just a small fry anyway (for now!) What about my automatic investment plan question? If I only want to chuck in a couple of hundred a month is the share market totally impractical? I think I already know it is.  I would like to kick it off with only a couple of thou. Think back years and years ago when you to had very little money. How did you guys get the ball rolling?


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## Julia (6 February 2006)

*Re: Captital gains and shares*



			
				Goin' For Broke said:
			
		

> Ok thanks for that. I am not acting on behalf of a company, or even my super for that mater, just as a regular joe. So it's like any asset, held more than a year, then 50%. Right right, i'm supposed to see a financial adviser. I've seen their fee schedules!!!!!!!!! I am just a small fry anyway (for now!) What about my automatic investment plan question? If I only want to chuck in a couple of hundred a month is the share market totally impractical? I think I already know it is.  I would like to kick it off with only a couple of thou. Think back years and years ago when you to had very little money. How did you guys get the ball rolling?




My suggestion would be to phone financial planners (as distinct from financial advisers) from the Yellow Pages.  Most will be happy to offer you a free inroductory interview at which time you can outline what you are looking for and ask some basic questions, while assessing the person, whether or not you relate comfortably to him/her, getting an idea of how capable he/she is, and some details of the fee structure.

Be wary of any adviser/planner who says there is no cost to you of placing investments on your behalf.  This almost necessarily means they are receiving commission from the funds into which they will place your money, and obviously in that case you are not receiving unbiased advice.

Better to ask an adviser/planner if they are independent and work on a fee for service basis.  And if so, then get a signed statement from them that they do not offer advice or make placements of funds on the basis of commission received.

If you have at this stage fairly small amounts to invest, there's a good deal to be said for just buying directly via online broker a few blue chip shares.
That way, no one is getting any commission or fees on anything, other than the minimal amount paid for brokerage.

Good luck

Julia


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## nizar (6 February 2006)

*Re: Captital gains and shares*



			
				Goin' For Broke said:
			
		

> Ok thanks for that. I am not acting on behalf of a company, or even my super for that mater, just as a regular joe. So it's like any asset, held more than a year, then 50%. Right right, i'm supposed to see a financial adviser. I've seen their fee schedules!!!!!!!!! I am just a small fry anyway (for now!) What about my automatic investment plan question? If I only want to chuck in a couple of hundred a month is the share market totally impractical? I think I already know it is.  I would like to kick it off with only a couple of thou. Think back years and years ago when you to had very little money. How did you guys get the ball rolling?




if u wanna invest a couple of hundred a month into stock-market, the best way id say is 2 go through a managed fund, u can set up regular savings plan and they direct debit your account...

i know ppl say the fees r too high and blah blah but i reckon its worth checking out, thats how i first started. In the meantime, i researched on my own about stocks, a yr later im ready 2 go into stock-market investing and my capital has already grown through the managed fund...

Investing every month, or averaging out, is good for stocks as well as u can be sure ur not buying at the peak....


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## Duckman#72 (7 February 2006)

*Re: Captital gains and shares*



			
				Prospector said:
			
		

> But of course, contact your financial adviser and/or the ATO before making any decisions.  Because there is a lot of misunderstanding out there myself included




I'm seeing a lot written about "talking to your financial planner" about your taxation problems - better off seeing your accountant (CA or CPA). Financial planners are not necessarily qualified to talk about taxation issues (although many openly do).


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## grumpee boi (7 February 2006)

*Re: Captital gains and shares*

Goin' for broke - unfortunately super is not tax free.  Long term (> 1yr) capital gains are taxed at 2/3*15% or 10%.  Other capital gains are taxed at 15%.  However, there are no CGT liabilities when moving from the accumulation to pension phase although the government did try to change that a few years ago.

Read some of my other posts re: index funds and etfs for more info.  With respect to monthly contributions, generally you can choose an index fund provider that sits within a 'wrap' structure.  This is a portfolio admin. facility that 'wraps' around all of your investments.  Generally there are contribution fees but you can negotiate with your financial planner that places you for him/her to place the contribution fee at 0% so that each contribution has nothing skimmed off the top.  This is only really applicable if you go for a fee-for-service financial planner that charges you a fee for the plan and recommendations.  Of course there are other fees such as the wrap platform admin fee and the fees charged by the index funds themselves.

The index fund fees are cheaper insided a wrap because you are accessing wholesale funds.  For example, to invest with Vanguard or DFA you would need a minimum of $500k or $1 million respectively to access the wholesale management fees.  But within a wrap the minimum investment can be as low as $1,000.

www.cfoc.com.au is my website and it talks about fees and commissions in more detail.  There is also quite a bit of info on index funds, etfs and general risk/return stuff in general.

I hope that this helped.
Adam


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## Prospector (7 February 2006)

*Re: Captital gains and shares*



			
				Duckman#72 said:
			
		

> I'm seeing a lot written about "talking to your financial planner" about your taxation problems - better off seeing your accountant (CA or CPA). Financial planners are not necessarily qualified to talk about taxation issues (although many openly do).




That is exactly what I said Duckman - see your Advisor, not planner!


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## Duckman#72 (7 February 2006)

*Re: Captital gains and shares*



			
				Prospector said:
			
		

> That is exactly what I said Duckman - see your Advisor, not planner!




Hi Prospector,

If you mean "Financial Advisor" as in "Qualified Accountant" I agree with you. 

Duckman


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## Prospector (7 February 2006)

*Re: Captital gains and shares*

Cheers - wouldnt touch anyone else!


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## Goin' For Broke (17 February 2006)

*Re: Captital gains and shares*

Thank you all for your kind 'advice'. I think you'll be happy that I am learning before leaping at this point. Just as well, I am taking a beating on the investopedia game! It's good to get used to the idea of my 'money' gaining one day and taking a dive the next. And I thought Blackjack was fun.


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## laurie (19 February 2006)

*Re: Captital gains and shares*

Here is my version what CGT should be:
If you buy/sell shares the CG should only be taxed if the gain is taken out of the market and placed elsewhere for e.g if I buy $5000 of XYZ and 3 month later sell for say $5700 and placed into my superfund or term deposit/cheque account then the CGT sould apply to the $700 BUT if I buy XZY for $5700 then there should be NO CGT applied as it was invested back into the market sort of a DRP this in my opinion will encourage more people to re-invest back into the market say allow T3 period to reinvest I'm sure others here will shoot my idea down so go for it

cheers laurie


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## Duckman#72 (19 February 2006)

*Re: Captital gains and shares*



			
				laurie said:
			
		

> Here is my version what CGT should be:
> If you buy/sell shares the CG should only be taxed if the gain is taken out of the market and placed elsewhere for e.g if I buy $5000 of XYZ and 3 month later sell for say $5700 and placed into my superfund or term deposit/cheque account then the CGT sould apply to the $700 BUT if I buy XZY for $5700 then there should be NO CGT applied as it was invested back into the market sort of a DRP this in my opinion will encourage more people to re-invest back into the market say allow T3 period to reinvest I'm sure others here will shoot my idea down so go for it
> 
> cheers laurie




Hi Laurie

The system you have mentioned for "rolling over" capital gains into replacement assets does exist. However it is only for what are called active assets such as (businesses) and does not relate to passive investments such as shares and rental property. IMO no chance of the Government changing this legislation (unless they were going to take away something contentious on the other side - like taxing the home or scapping negative gearing)

Duckman


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## laurie (19 February 2006)

*Re: Captital gains and shares*

Duckman#72

Thanks was not aware of that! learn something everyday  

cheers laurie


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## poortrader (10 May 2010)

*Capital gains on shares*

Hi,

Just something i want cleared up RE: Capital Gains tax on shares:

If i earn lets say $60K salary and make $40K in capital gains from shares,

my income will be $100K, of that $100K, $20K will be taxed at a higher tax bracket 38c in the dollar right? based on the tax table from ATO website
http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm

am i understanding it correctly?

so if my salary was $80K and i earned $100K in shares, the capital gains will be taxed at 38%? thats a fair wack


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## springhill (10 May 2010)

*Re: Capital Gains on Shares*



poortrader said:


> Hi,
> 
> Just something i want cleared up RE: Capital Gains tax on shares:
> 
> ...




Depends on if you are classed as in investor or trader. Capital gains (30% OR 15% FOR A 12 MONTH HOLD) is for investors, normal income tax rates apply for traders.
Your rate of buy/sell and length of time held will determine which you are.
Type "Capital Gains" in the search box at the top and tick the Thread Title Only box, you will find several threads on this.
My advice is talk to a tax specialist to find out which you are classified as, and you will know exactly where you stand.


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## Krusty the Klown (10 May 2010)

*Re: Capital gains on shares*



poortrader said:


> Hi,
> 
> Just something i want cleared up RE: Capital Gains tax on shares:
> 
> ...




Yes.



> so if my salary was $80K and i earned $100K in shares, the capital gains will be taxed at 38%? thats a fair wack




Correct and yes it is.

Regardless of how the income is earned once income passes in to a higher tax bracket it is taxed at the appropriate rate even after capital gain discounts and losses are applied.


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## ROE (10 May 2010)

*Re: Captital gains and shares*



Prospector said:


> HI
> 
> You also pay tax on any other profit that the Super Fund earns - eg from dividends.
> 
> H




You should get back 15% if the dividend is fully franked due to imputation credits..

company already paid 30% for that, super tax at 15% so you get back 15%


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## So_Cynical (10 May 2010)

Anyone getting 100K a year regardless of how it comes, needs to have some kind of negative gear tax strategy...other wise your just throwing money away.

IMO


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## late_start (11 May 2010)

So if you buy and sell shares inside your super account, do you pay any tax if you make any gain?


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## Julia (11 May 2010)

late_start said:


> So if you buy and sell shares inside your super account, do you pay any tax if you make any gain?




It depends on whether your Super is in accumulation or pension phase, ie no tax in pension phase, 15% in accumulation.


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## late_start (12 May 2010)

Thanks Julia.  During the accumulation phase then, Is the 15% flat rate for all?  Including share hold less or more than 12 month......


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