# Share trading and tax



## sly (20 July 2009)

Hi all. Acouple of questions.

I understand that if you borrow money from say a LOC or other form of loan to buy shares then the interest is tax deductible. 

I also understand that if you sell the shares you must pay back the amount borrowed for the shares because once you no longer have the asset/shares the borrowed funds are no longer tax deductible. I also assume that if you sell for a loss you should pay the remaining amount off if possible as this wil not be tax deductible. In the case of a profit sale i guess you would pay the debt,allow for tax and enjoy the profits how you see fit.

I hope my understanding is correct.

Where i get a little confused is when you buy and sell the same shares that you bought for different prices at different times. How is the tax worked out.
EG

ABC shares bought  100 at 1.20
                           250 at 1.30
                           1000 at .90     ( made up values of coarse)
                           300 at 1.35

Then you sell 1500    at 1.50

How would tax be worked out or how would i record this for the tax man so he can work it out.

Sorry if this is a dumb question. I only just started trading small amounts and want to get it right.
Cheers.


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## tech/a (20 July 2009)

At the end of the financial year it is Initial capital + profit or - losses = Profit or loss,then deductions are applied.
This is added or deducted from your PAYE if employed or Business profits if self employed.

So you can trade in and out of a stock 100 times for a nett loss or profit and not have to worry about it until June 30th.


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## sly (20 July 2009)

tech/a said:


> At the end of the financial year it is Initial capital + profit or - losses = Profit or loss,then deductions are applied.
> This is added or deducted from your PAYE if employed or Business profits if self employed.
> 
> So you can trade in and out of a stock 100 times for a nett loss or profit and not have to worry about it until June 30th.




Not sure if i completely understand.
I understand if you bought 100 abc shares at $1.00 and sold at $1.10 you would have $10 profit that will be taxed.

Vice versa if you bought at $1.10 then sold at $1.00 you would have a $10 dollar loss. Also if you did all these trades in the one financial year you would be even and there would be know tax implication( Disregarding brokering)

Where i get confused is with my first example above. If you buy the share a few times at different prices then sell a varied amount at another price.If like above you sell 1500 shares. How is it worked out what you paid for them when you bought in several amounts at varied prices.

If someone can show me how it is worked out on my first example that woukld help me work it out.
Cheers


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## cutz (20 July 2009)

That's why i don't partipate in DRP's, they are a pain in the you know what.

First in first out, work out work you paid for your first 1500, in future run a spreadsheet showing all the lots and cost bases, then as you sell remove them from the top of the list and pop them into your closed positions spreadsheet.

Something like that anyway.


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## Julia (20 July 2009)

There are threads covering this.  Try doing a search.

It doesn't have to be first in, first out.
When you sell some shares you can choose which parcel to offset that sale against.

It's made simpler if you buy and sell like amounts, e.g. 1000 buy and 1000 sell.

e.g.
Buy 100 ABC @ $1.00   on 1 January 2009

Buy 100 ABC @ $1.10   on  1 September 2009

Sell 100 ABC @ $1.20   on   1 December 2009

You can choose which of your buys you offset the sale against.  Obviously you will choose the one which offers the best tax advantage.

OK?


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## sly (20 July 2009)

Julia said:


> There are threads covering this.  Try doing a search.
> 
> It doesn't have to be first in, first out.
> When you sell some shares you can choose which parcel to offset that sale against.
> ...




Thanks all for the replies. I will have a better look for past threads also.
Ok so you can choose which to offset it against. Is this just a matter of keeping records showing which parcel of shares you offset against or must it be recorded in the actuall sale of the shares.


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## Julia (20 July 2009)

It's not recorded in the sale process by your broker.
Just keep records in whatever form you find easiest, and either calculate yourself the best tax situation or ask your accountant to do this.


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## So_Cynical (20 July 2009)

sly said:


> Is this just a matter of keeping records showing which parcel of shares you offset against or must it be recorded in the actual sale of the shares.




U need to keep records in case the ATO wants to ask questions....also helps for next 
years tax, as ive found out last week doing my tax.

___________

I'm wondering if anyone knows of any freeware that's good for this type of record 
keeping...ive never really used a spread sheet, can they do calculations?


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## skc (20 July 2009)

So_Cynical said:


> U need to keep records in case the ATO wants to ask questions....also helps for next
> years tax, as ive found out last week doing my tax.
> 
> ___________
> ...




I suppose this is a joke? When I first saw a spreadsheet when I was 8 I thought it was a giant electronic phone book. Organise your friends in alphabetical orders... But seriously, spreadsheets can do calculations you can not even dream of.

Anyway, this might be of help. I personally don't use it for tax but it does have a tax function. I like it for the report function where you can easily see your portfolio allocation across different industries.

http://www.smartportfolio.com.au/


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## sly (20 July 2009)

Thanks for the replies guys. I will admit i am clueless when it comes to spreadsheets. But im learning. Just missed computers at school.
Have another question but will start new thread.

Cheers


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## sly (30 July 2009)

ok just thought of another one then I will relax. If I buy 500 abc shares with cash from my savings. Then I buy another 500 later with borrowed funds. Then later I sell 500. Must that be offsett against the borrowed funds and repay the loan. Or can it be offset against the shares bought with savings therefore allowing me to spend the proceeds without affecting the tax deductibility of the borrowed funds. Any thoughts would be appreciated.


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## So_Cynical (30 July 2009)

sly said:


> ok just thought of another one then I will relax. If I buy 500 abc shares with cash from my savings. Then I buy another 500 later with borrowed funds. Then later I sell 500.




So u need to match up the 500 ABC shares u sold to 500 u own...that way u can work out the cost base and therefore CGT implications on a per share/s basis....and carry that cost base for the remaining shares forward until there sold.


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## sly (30 July 2009)

So_Cynical said:


> So u need to match up the 500 ABC shares u sold to 500 u own...that way u can work out the cost base and therefore CGT implications on a per share/s basis....and carry that cost base for the remaining shares forward until there sold.




Ok so I could choose to either 
A# match it to the shares bought with borrowed funds
B# match it to shares bought with savings.

One would mean(a#) I would have to repay the borrowed funds because the loan is no longer tax deductible post sale while the other(b#) would allow me to spend the sale proceeds on non investment items due to share originally being bought with cash.

Does this sound right.


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## So_Cynical (30 July 2009)

sly said:


> Ok so I could choose to either
> A# match it to the shares bought with borrowed funds
> B# match it to shares bought with savings.
> 
> ...




Or both, say 50/50 or any combination u like...also the fees and interest payed on the investment loan are always deductible etc as long as its used for investment/income purposes...that includes sitting in the bank losing u money.


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## quarky (27 August 2009)

Julia said:


> There are threads covering this.  Try doing a search.
> 
> It doesn't have to be first in, first out.
> When you sell some shares you can choose which parcel to offset that sale against.
> ...




nice and simple strategy, *Julia*.

i've searched some threads but i haven't been able to find one that tells me properly, what the outcome is.  so, i seek the knowledge of this excellent forum members, with the following scenarios from my situation
(company names & dollar figures are substituted for example's sake)


Scenario 1
------------

2006 Buy: 1000 x ABC @ $0.50 = $500 [Brokerage Buy/Sell, $30]
2006 Buy: 1000 x XYZ @ $1.00 = $1000 [Brokerage Buy/Sell, $30]

2006 Sell: 1000 x XYZ @ $1.25 = $1250 (Profit: $250 = $1250 - $1000)

So, Capital Gains Tax (CGT) for Selling XYZ, held less than 1 year, is 50%
i.e. 50% x $250 profit = $125


Situation:
I am really strapped for cash and I don't see the point of leaving the ABC stocks there, as their price went down to 1000 x $0.25 = $250.  So, I want to pull the ABC money out, i.e. $250 ($250 or 50% loss in value).


Question:
- If I declare the $250 gains in XYZ, then does that offset the loss of $250 in ABC?,  i.e. I sell all $250 of ABC and I don't pay the CGT on XYZ, therefore I am able to pull my money out of ABC?

- or is it because I'm paying a CGT of $125 from XYZ, then I should only sell $125 worth of ABC, to have offset it?

- Should I include the brokerage charges?





Scenario 2
------------

2006 Buy: 1000 x ABC @ $0.50 = $500 [Brokerage Buy/Sell, $30]
2006 Buy: 1000 x XYZ @ $1.00 = $1000 [Brokerage Buy/Sell, $30]

2008 Sell: 1000 x XYZ @ $1.25 = $1250 (Profit: $250 = $1250 - $1000)

So, Capital Gains Tax (CGT) for Selling XYZ, held more than 1 year, is 25%
i.e. 25% x $250 profit = $62.50


Situation:
Same as scenario 1, I am really strapped for cash and I don't see the point of leaving the ABC stocks there, as their price went down to 1000 x $0.25 = $250.  So, I want to pull the ABC money out, i.e. $250 ($250 or 50% loss in value) and sell it.


Question:
- If I declare the $250 gains in XYZ, then does that offset the loss of $250 in ABC?,  i.e. I sell all $250 of ABC and I don't pay the CGT on XYZ, therefore I am able to pull my money out of ABC?

- or is it because I'm paying a CGT of $62.50 from XYZ, then I should only sell $62.50 worth of ABC, to have offset it? (which means, there's still $437.50 worth of ABC left in my portfolio)

- Should I include the brokerage charges?




These questions are purely from a capital gains/loss perspective of buying/selling stocks, i.e. I don't have any gains/losses from any other assets (e.g. property, rent money, etc.)
OR
Do dividends also fall under what I have to declare, to offset sells against?


I ask because, I'm losing heaps of money on some underperforming stocks (up to 70 - 90% loss in value! )and this has been the case for 3 - 5 years now.
Last financial year, I made some profit in 1 particular stock...but I did not offset it against any of my poor-performing stocks.  I plan to reverse that this year, as the ASX looks good again after it's "bottoms" earlier....and I really need to pull all the money out of the poor stocks, and put into a house....so, any advice or answers relating to the above scenarios would be most appreciated.

Thanks...


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## Krusty the Klown (27 August 2009)

In terms of CGT:

You can claim a 50% discount on any capital gain on an asset held longer than 12 months. Your examples are claiming the discount *twice.*

If you make a $250 profit on an asset held less than 12 months you pay CGT on the whole profit amount. $250 x your marginal tax rate. If you hold the asset longer than 12 months, then you can claim the 50% discount and pay tax on $125.

In terms of offsetting losses the formula is:

((Current year assessable capital gain - current year assessable capital losses) - previous income year losses) - discount to any eligible assessable component of current year gains.

If that actually makes sense.

Or another way:

Work out your net capital gain or loss from this tax year, subtract any losses from previous years, then apply the discount to any eligible component of the net capital gain from this income year.

That is your assessable capital gain.

In terms of dividends, they are treated separately from CGT calculations on your tax returns.

Any brokerage is added to your purchase costs.


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## quarky (27 August 2009)

Krusty the Klown said:


> In terms of CGT:
> 
> You can claim a 50% discount on any capital gain on an asset held longer than 12 months. Your examples are claiming the discount *twice.*
> 
> ...



oh...
i see.
thanks for that, *Krusty the Klown*.

i can see what you mean by 'assessable capital gain'.

but i was also, looking at how can i pull out the "ABC" stocks, in terms of what it's worth today offsetting it accurately, with the gains made in "XYZ"...so, i don't lose money in selling "ABC" stocks and i don't 'pay tax' in the XYZ ones that i have to use to offset those "ABC" stocks with.

anything extra, i'm happy to pay tax on, even less than 12 months...because my aim is to pull out as much money as possible in under-performing stocks, because i can't go forward with the amount of money tied up in those poor stocks.


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## swm79 (27 August 2009)

quarky said:


> but i was also, looking at how can i pull out the "ABC" stocks, in terms of what it's worth today offsetting it accurately, with the gains made in "XYZ"...so, i don't lose money in selling "ABC" stocks and i don't 'pay tax' in the XYZ ones that i have to use to offset those "ABC" stocks with.




1) you SHOULD use FIFO in calculating your gains... its what the ATO accepts. they dont like it any other way. you COULD use averages BUT they'll be investigating as to WHY etc i.e. they'll want to do more snooping around.

2) have you held the shares for more than 12 months? 

3) did you buy the shares before September 1985?


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## swm79 (27 August 2009)

also, so are you trying to effectively make your CGT nil? i.e. you want to pull out an equal amount of profitable shares to compensate the losses on the under performing ones?


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## quarky (28 August 2009)

swm79 said:


> 1) you SHOULD use FIFO in calculating your gains... its what the ATO accepts. they dont like it any other way. you COULD use averages BUT they'll be investigating as to WHY etc i.e. they'll want to do more snooping around.
> 
> 2) have you held the shares for more than 12 months?
> 
> 3) did you buy the shares before September 1985?



1) i won't be using averages. i have a very un-complicated, straight-forward tax situation (i.e. no trusts, property, assets other than shares, etc.)

2) i have shares that i have held less AND more than 12 months, i.e. i have bought shares in 2006, 2007, 2008 and 2009.  and most of my portfolio is under-performing, so i am holding onto stocks that are losing 80% in value AND more than 12 months.

3) No, they were not bought before 1985. (only started buying shares around 1999/2000)








swm79 said:


> also, so are you trying to effectively make your CGT nil? i.e. you want to pull out an equal amount of profitable shares to compensate the losses on the under performing ones?



EXACTLY.
you hit the nail on the head, *swm79*.

i'm NOT trying to make CGT _nil_.
my aim is to compensate for the losses, of the under-performing ones...i.e.  after i make the sell for 1 stock that profited me, i need to know how much of the ones that i am already holding, i need to offload... i.e. an EQUAL amount.

if i end up paying CGT, for the 'excess', that's fine...because the way i see it:
- i REALLLLY need to pull the money out of the no-hoper stocks...seriously
- even if do pay a bit of CGT _after_ that, that's negligble for me, because the loss is so great that i can't buy a property if i don't pull that money out. 

so, my aim is not to reduce CGT but offset the losses of the stocks that i will be selling, with the profits of what i sold, EQUALLY.

and my question was, to figure out how it worked for selling stocks (that made a profit, obviously) within 12 months and after 12 months, and how that affects how much i need to sell of the stocks (e.g. "ABC") that will give me definite losses.


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## titus (4 September 2009)

> Originally Posted by quarky
> EXACTLY.
> you hit the nail on the head, swm79.
> 
> ...




Not sure if I understand exactly what you mean but I'll give it a go...

Are you saying that if you made a profit on XYZ shares of say $3000 and you want to sell some of your poor performing shares (e.g. ABC shares) so as to eliminate or minimise your CGT bill, how much of ABC shares would you have to sell?

Well if you have held XYZ shares for >12 months then you can get a 50% discount on CGT which means that only $1500 of your profit will be taxed at your marginal rate.  If held for <12 months you pay CGT on the full $3000.  If you want to offset this gain with AN EQUAL AMOUNT of losses then you sell ABC at a price which will give you a loss of either $3000 or $1500, whatever is applicable.  So if say you have 3000 shares of ABC and you bought them for $4, when the price is $3 and you sell then you have made a loss of $3000 (disregarding brokerage and other costs).

I may have over-simplified your question, so apologies if I interpreted it incorrectly.


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