# Capital gains tax



## Johno (28 January 2009)

How is this figured out? Does the government take tax out of every trade you do? Or do they take the tax out of what your entire capital is at the end of the year?

IOW if your portfolio started at say $10 000 and you won and lost a few trades, but your entire port folio ended up down by $2000, would you still pay tax on the trades that you profited from? Or do they only charge capital gains tax if your WHOLE capital has made a profit?


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## AlterEgo (28 January 2009)

Johno said:


> IOW if your portfolio started at say $10 000 and you won and lost a few trades, but your entire port folio ended up down by $2000, would you still pay tax on the trades that you profited from? Or do they only charge capital gains tax if your WHOLE capital has made a profit?




If the total of all your capital gains and losses ended up being an overall loss of $2000 for the financial year, then you wouldn't pay any tax on it. You'd declare a capital loss of $2000 on your tax return, which you can then carry forward to offset any capital gains made in future years.


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## son of baglimit (29 January 2009)

oh dear - the number of folk that go into share trading, or any investment, and not understand any of the tax implications - until its too late.

try this.........for each trade

http://www.delisted.com.au/CapitalGainLossCalculator.aspx


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## drsmith (29 January 2009)

The simplest answer to this is the following Australian Tax Office link.

http://www.ato.gov.au/individuals/pathway.asp?pc=001/002/026&mfp=001/002&mnu=44684#001_002_026


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## transportable (29 January 2009)

please let me know if I am wrong but if you are trading in shares That is turning over shares on a daily, weekly basis with the intention of making a profit rather than aninvestment then it is not capital gains tax involved but income tax as if running any business and you were buying and selling any commodity.

Problem with trading share the GST is only partly refundable as it is a financial instrument.

Please advise if I am onthe wrong track.


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## transportable (29 January 2009)

ok the ATO advised that you should go to ATO website and search for share trading This will give you information on whether you are a trader and then income or loss wil be revenue or if you are an invester the profit or loss will be capital. Good luck.


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## MS+Tradesim (29 January 2009)

transportable said:


> ok the ATO advised that you should go to ATO website and search for share trading This will give you information on whether you are a trader and then income or loss wil be revenue or if you are an invester the profit or loss will be capital. Good luck.




Even if you are a trader you can still nominate individual trades as capital purchases rather than trading stock.


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## Johno (29 January 2009)

So is the simple answer, no you dont have to pay tax if your total capital is down?


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## MS+Tradesim (29 January 2009)

Johno said:


> So is the simple answer, no you dont have to pay tax if your total capital is down?




If your realised losses are greater than your realised gains, then generally there would be no tax payable.

As it would also be your intention to make money from trading you would also be able to claim some expenses. eg. data costs, subscriptions to relevant magazines, books about trading, a percentage of your internet costs, etc. Speak to your accountant for specific advice for your situation.


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## roofa (29 January 2009)

Johno said:


> So is the simple answer, no you dont have to pay tax if your total capital is down?




Johno, to put it simply you only have to worry about CGT if you have sold shares at a profit overall. This has nothing to do with your total holdings or overall capital invested being up or down in value.

It is not a gain until you sell.
It is not a loss until you sell.

Hope this is easy to understand.


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## wonderrman (29 January 2009)

There is this big guide you can get from the ATO on cgt. It's very good and free. Think you can order it from the website.


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## Johno (30 January 2009)

roofa said:


> Johno, to put it simply you only have to worry about CGT if you have sold shares at a profit overall. This has nothing to do with your total holdings or overall capital invested being up or down in value.
> 
> It is not a gain until you sell.
> It is not a loss until you sell.
> ...




Roofa, what i want to know is...is every trade treated seperate from one another as far as paying CGT or does the tax office tax you on your WHOLE portfolia.

So if ive made 100 trades and 40 of them made a profit, yet my whole portfolia (capital) was down, would i still have to pay tax on those 40 trades because they were a profit?


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## AlterEgo (30 January 2009)

Johno said:


> So if ive made 100 trades and 40 of them made a profit, yet my whole portfolia (capital) was down, would i still have to pay tax on those 40 trades because they were a profit?




No.

The capital losses outweight the capital gains - overall capital gain for the year is negative - therefore no tax to pay.

And remember to carry that capital loss forward, as it can be used to offset capital gains made in later years.

Edit: Hang on, let me check something with you. These losses you're talking about, are they realised losses? ie. have those shares been sold? If not, they can't be used to offset the ones that have sold at a profit. CGT only applies to RELIASED gains and losses.


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## AlterEgo (30 January 2009)

Following on from that last point of mine, as far as GCT goes, the ATO only cares about REALISED profits and losses. The ATO does not care whether your current potfolio (ie. the shares you haven't sold yet) is in profit or loss, only the profit and loss of the shares that you have ACTUALLY SOLD.

So, if you have entered 100 trades and sold out of 40 of them at a total profit of say 20K, and the remaining 60 trades have not yet been sold and are at a current balance of a loss of 30K, then YES, YOU WILL STILL PAY CGT on the 20K, UNLESS you sell those remaining shares at a loss so that you realise a capital loss on them.


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## Johno (31 January 2009)

OK, yep youve answered my question. So I am taxed on my CAPITAL not individual trades.

I am talking about realised losses as in sold stocks.

Thankyou.


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## jersey10 (31 January 2009)

AlterEgo said:


> So, if you have entered 100 trades and sold out of 40 of them at a total profit of say 20K, and the remaining 60 trades have not yet been sold and are at a current balance of a loss of 30K, then YES, YOU WILL STILL PAY CGT on the 20K, UNLESS you sell those remaining shares at a loss so that you realise a capital loss on them.




how much CGT will you pay on that 20K?  do you pay less if you held the shares for over 1 year?


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## Johno (31 January 2009)

jersey10 said:


> how much CGT will you pay on that 20K?  do you pay less if you held the shares for over 1 year?





Yes you pay half if held for over a year.


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## jackson8 (31 January 2009)

AlterEgo said:


> Following on from that last point of mine, as far as GCT goes, the ATO only cares about REALISED profits and losses. The ATO does not care whether your current potfolio (ie. the shares you haven't sold yet) is in profit or loss, only the profit and loss of the shares that you have ACTUALLY SOLD.
> 
> So, if you have entered 100 trades and sold out of 40 of them at a total profit of say 20K, and the remaining 60 trades have not yet been sold and are at a current balance of a loss of 30K, then YES, YOU WILL STILL PAY CGT on the 20K, UNLESS you sell those remaining shares at a loss so that you realise a capital loss on them.




and thats why a lot of people will sell their stocks that are showing a loss before end of tax year to offset their gains and then repurchase them back in the new financial year
there is a proper term to describe this it just escapes me at the moment

but the tax office has rules concerning this sort of practice as well 

someone may know the term used to describe this method ...swishing or something like that...


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## Julia (31 January 2009)

Another aspect to consider is that if you have bought/sold several parcels of the same stock you can choose which parcel to offset against in order to minimise tax payable.


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## cutz (31 January 2009)

jackson8 said:


> someone may know the term used to describe this method ...swishing or something like that...




Hi Gary,

It's called a wash sale.


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## nick2fish (31 January 2009)

jackson8 said:


> but the tax office has rules concerning this sort of practice as wel




Yep, of course they do 
Great to be able to hover over ones already taxed savings and swoop and pick up the juicy bits without ever putting anything on the line.


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## bellenuit (23 April 2009)

MS+Tradesim said:


> Even if you are a trader you can still nominate individual trades as capital purchases rather than trading stock.




Where did you hear this?

I was advised on several occassions by the tax office (back around 2000 to 2003) that you will be deemed a trader or an investor but cannot be both. At the time, I wanted to actively trade, but had a substantial portfolio that was sitting on large capital gains that would be entitled to the 50% discount. I was told that even though I bought those shares for investment purposes, if my future pattern of share trading constituted that of a trader rather than investor, my existing portfolio would be treated as trading stock and would lose the CGT discount benefits when sold.

Because of that, I set up a separate company purely for trading. I buy investments in my name and I buy shares to trade in the company name, so one is quaranteened from the other.

If the ATO had told me that I could simply nominate part of my portfolio as investments, I would not have gone through the hassle and expense of setting up a company.


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## MS+Tradesim (24 April 2009)

bellenuit said:


> Where did you hear this?




My accountant. I leave them to sort out stuff with the ATO.


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## jono1887 (25 April 2009)

can we make deductions on our profits from expenses like laptop, internet connection and subscriptions to newspapers, finance magazines ect from capital gains??


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## cutz (25 April 2009)

G'Day,

Yes, trading expenses are deducted from your taxable income.


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## jono1887 (25 April 2009)

cutz said:


> G'Day,
> 
> Yes, trading expenses are deducted from your taxable income.




but arent the profits made from buying/selling shares considered to be
capital gains and not income... so are you still able to deduct from it??

i heard somewhere that you need to setup a business name for it to be
classified as income...


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## bellenuit (25 April 2009)

jono1887 said:


> but arent the profits made from buying/selling shares considered to be
> capital gains and not income... so are you still able to deduct from it??
> 
> i heard somewhere that you need to setup a business name for it to be
> classified as income...




If you are in the business of share trading, then your profits (and losses) from trading are classified as Income and do not come under the CGT system. In fact you do not even have to trade a particular stock to make income (or a loss) as at year end you must value your stock (this is a bit complex as there are a few valuation options that you can choose) and if there is an increase in valuation then that gets added to income, a reduction gets added to your losses.

Like any business, you can claim expenses for things related to carrying on that business.

You don't have to set up a company or have a business name to carry on the business of share trading. Whether you are deemed to be a share trader or not is dependent on the nature of your trading. This ATO document should help, but it is not clearcut.

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

One area that I have got conflicting information on, is whether one can be a share trader and share investor at the same time. I had been informed by the ATO several years ago that you could be only one or the other. This can have significant implications if you already hold a large stock portfolio that has increased significantly in value (particularly if already held for more than a year, as the CGT discount would apply on any sale). If you then were to commence share trading according to the guidelines at the link above, then your existing portfolio would become part of your trading stock and any sales would NOT fall under the CGT system. You would lose the 50% CGT discount.

Several years ago when I wanted to start trading I asked the ATO about this issue and was advised that it was "safer" to set up a company to do the share trading. As a company is a separate legal entity to an individual, the company would become the share trader, but any purchases that I had or would continue to make personally as an investor would remain as investments and subject to CGT.

That being said, someone posted earlier that you are allowed to quarantine your investments from your trading. I am not sure they are right and can see potential tax avoidance possibilities if that were to be true.


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## MS+Tradesim (25 April 2009)

bellenuit said:


> That being said, someone posted earlier that you are allowed to quarantine your investments from your trading. I am not sure they are right and can see potential tax avoidance possibilities if that were to be true.




If you ring the ATO 3 times with the same question you'll get 5 different answers.

My suggestion would be find, and be prepared to pay, a competent accountant specialising in the area. Not the corner store variety. A good accountant doesn't just prepare your tax. They are a valuable business advisor.


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## jono1887 (25 April 2009)

MS+Tradesim said:


> If you ring the ATO 3 times with the same question you'll get 5 different answers.
> 
> My suggestion would be find, and be prepared to pay, a competent accountant specialising in the area. Not the corner store variety. A good accountant doesn't just prepare your tax. They are a valuable business advisor.




I cant afford one!! :


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## beamstas (25 April 2009)

jono1887 said:


> I cant afford one!! :




There is a difference between "investing" and "trading"

Trading is carrying on business with the intention of making profit
Investing is...?

The ATO have a HUGE gray area on this subject

It's pathetic really


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## jono1887 (26 April 2009)

whilst we're on the topic of taxes... i was wondering, if you open a trading account in another country, do you pay the taxes on the capital gains you make in the country you're in, or the country the account is held? 

ie if i open a trading account i the US, do i pay my taxes from that account to the US govt or aust govt?? or could i avoid paying taxes altogether? :


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## bellenuit (26 April 2009)

jono1887 said:


> whilst we're on the topic of taxes... i was wondering, if you open a trading account in another country, do you pay the taxes on the capital gains you make in the country you're in, or the country the account is held?
> 
> ie if i open a trading account i the US, do i pay my taxes from that account to the US govt or aust govt?? or could i avoid paying taxes altogether? :




You pay the CGT to the Australian government. Note that the gain is calculated using the exchange rate at the date of purchase and the exchange rate at the date of sale. So you DON'T first work out the gain in US dollars and then convert to Aussies. Because of the way it is calculated, you may have a gain according to the ATO, but a loss in US dollars (if the Aussie fell in value between when you bought and when you sold). The reverse also applies. 

Your US broker will deduct 15% withholding tax on any dividends you receive, but you  can claim that back when you declare the divies in your Australian tax.

The tax treatment may be different for other foreign countries.


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