# Taxation and capital losses/gains



## posh (3 September 2009)

My capital losses last financial year were greater than my capital gains.
I've just begun trading so I do not know how the tax aspect works. Is it true that I cannot offset my losses against my income? So if I'd just declare a zero capital gain rather than make deductions on my income from those capital losses?
Alternatively, can I delay declaring capital losses and have them carried forward to next financial year?


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## robe4 (3 September 2009)

*Re: A Tax Question*

HAD THE SAME PROBLEM AND MY TAX AGENT GOT ME A REFUND BECAUSE I HAD MORE LOSSES THAN WINS . IN MY CASE IM TRADING FULL TIME AND HAVE A LOSS THAT IS CARRIED OVER TO THIS FINANCIAL YEAR


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## titus (3 September 2009)

It depends on whether you declare yourself a 'trader' by occupation or not.

If not you must keep your capital gains/losses separate from your income/deductions.  Therefore you cannot offset your income with your capital losses, only your capital gains, nor include your capital losses as a deduction.

If say during the tax year you made positive capital gains of $1000 and negative capital gains (losses) of $3000, leaving a net gain of -$2000 then, in your tax return you declare your positive capital gains ($1000) and your net capital gains (if you made a loss, this will be zero).  You are able to carry forward to future years, your losses that you haven't used i.e. carry forward a capital loss of $2000.  The losses you carry forward can be carried forward indefinitely (as long as you don't use it up of course)

I you are a trader then your capital gains/losses count as income and you may receive a refund.


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## trainspotter (3 September 2009)

Ask your accountant for this kind of advice. Asking the forum will only lead to different points of views on the matter. Being a "trader" as a specified occupation may not assist you with the tax man. Generally if you make a profit you wil need to pay tax depending on how you are structured, _*ie*_ family trust, individual, company, super fund etc. Talk to your accountant.


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## jono1887 (3 September 2009)

Trader
- Income: can deduct from normal income

Investor
- Investor: can deduct from other capital gains... losses can be rolled over to later years when you profit later on.


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## RamonR (4 September 2009)

I had a similar situation.
My accountant offset capital losses against income.
Based on the fact that the average time I had these trades open was 14 days.

I was happy with this outcome, but have subsequently found out that I am not entitled to reduced capital gains on long term positions.

I would consider myself a long term investor but by far most of my activity falls into trading.
I am building a long term dividend paying portfolio. But have seen opportunities to earn income and therefore increase my portfolio through trading.

I am concerned that I will lose much more then I have gained by not being entitled to reduced capital gains for long term shares.
This will only be a issue when I think the next correction is coming as that is the only thing that would induce me to sell long term portfolio.


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## edaranjo (4 September 2009)

My understanding is that if you own shares for a year or more, you only have to pay tax on 50% of your capital gains.


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## Krusty the Klown (4 September 2009)

posh said:


> My capital losses last financial year were greater than my capital gains.
> I've just begun trading so I do not know how the tax aspect works. Is it true that I cannot offset my losses against my income? So if I'd just declare a zero capital gain rather than make deductions on my income from those capital losses?
> Alternatively, can I delay declaring capital losses and have them carried forward to next financial year?




You have to declare your losses in the income year that they are made.

Total capital gains - capital losses = net gain or loss. You declare either on your return. Losses can offset gains in future years, but you have to declare it in the current year.

As a newish trader, you would be more than likely assessed using the capital gains system.

Go and see a tax agent or adviser and get the answer for you, because everyone's situation is different. You may only need to see them once, get the answers you need, and then do it yourself next time to save $$$$$

You don't need to be a "trader" by occupation to treat trading income as ordinary income, but you need to satisfy certain ATO criteria. Such as is this enterprise likely to be an ongoing one and generate income in the future.


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## stardust1984 (6 September 2009)

Hi all,

I am a newbie, I found this thread is quite interesting. I just wonder if anyone can give me some advices.

I am running a small business (company), would it be possible to use my company income (pre-tax) to invest in stock market?

Another question is about capital gains and losses: if I pay myself for example 100 dollards for the year 2009 and I invest in stock and lost for example 10 dollards in year 2009, is the lost (10 dollards) tax deductible?

Any help or advice would be greatly appreciated.

Regards,
Phillip


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## Pallen (7 September 2009)

RamonR said:


> I had a similar situation.
> My accountant offset capital losses against income.
> Based on the fact that the average time I had these trades open was 14 days.
> 
> ...




Hi Ramon,

Not sure if you were seeking an answer but in relation to this part of your post



RamonR said:


> I was happy with this outcome, but have subsequently found out that I am not entitled to reduced capital gains on long term positions.




This is due to a distinction placed on stocks by the ATO.

Irrespective of whether you state yourself as a trader, long term shares, ie WES WBC, which you hold for an extended period are still considered _capital_ - hence it is subject to capital gains.

Shares traded in the short term are referred to or classified as _stock_ and thus forms part of your cost of goods sold, a feature of any mechandise company.

In regards to losing out on your long term holds remember holding those stocks or any stock for over a year will allow you to claim the general discount, 50%.

Hope that helps.


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## Krusty the Klown (7 September 2009)

stardust1984 said:


> Hi all,
> 
> I am a newbie, I found this thread is quite interesting. I just wonder if anyone can give me some advices.
> 
> ...




Hey Stardust

Yes you can use company earnings to invest in the stock markets. Just make sure you leave enough cash on hand to pay your tax bill from your earnings.

If you pay yourself a salary, and you invest as an individual, then your losses are not deductible against your salary, they would be classed as a capital loss. This capital loss can be offset against future capital gains, so they are deductible, just not against your salary, only future profits from capital gains.

Cheers.


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## RamonR (7 September 2009)

Pallen said:


> Hope that helps.




Thanks for the reply Pallen.

It does help.


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## posh (10 September 2009)

*Re: Taxation and capital loss/gain*

Hey guys,
Thanks for your responses. We've established that income cannot be offset by capital loss.
So now, to use an example used earlier, if I made a gain of $1000 and a loss of $2000 last financial year. Can I declare a net capital gain of $1000 and have $2000 loss carried forward to next financial year? Or must I deduct from the gains all the losses, that is, declare a net capital gain of $0 and carry forward $1000 to the next financial year?


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## AlterEgo (10 September 2009)

declare a net capital gain of $0 and carry forward $1000 to the next financial year


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## jono1887 (10 September 2009)

*Re: Taxation and capital loss/gain*



posh said:


> Hey guys,
> Thanks for your responses. We've established that income cannot be offset by capital loss.
> So now, to use an example used earlier, if I made a gain of $1000 and a loss of $2000 last financial year. Can I declare a net capital gain of $1000 and have $2000 loss carried forward to next financial year? Or must I deduct from the gains all the losses, that is, declare a net capital gain of $0 and carry forward $1000 to the next financial year?




i think you have to do the latter... net cap gain of 0 and carry 1k loss for the next year. But if you 'forget' to claim the cap loss.. i guess you could the first option and get your accountant to claim the losses for next fin year.


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## posh (11 September 2009)

yeah, i think that's correct. I've just been punching the numbers into etax, and the software forces you to deduct your losses from your gains as far as possible. is it permissible to 'forget'? since at face value it would only increase the amount you're taxed for a given year because your net gain increases.


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## jono1887 (11 September 2009)

posh said:


> yeah, i think that's correct. I've just been punching the numbers into etax, and the software forces you to deduct your losses from your gains as far as possible. is it permissible to 'forget'? since at face value it would only increase the amount you're taxed for a given year because your net gain increases.




well if you know that next financial year your income will go up to the next tax bracket.. it may be more 'tax effective' if you 'forget' to claim the capital losses and then claim them next year.

You shouldn't have to many problems in trying to convince ATO that you simply forgot to account for your losses for this year, and then account for them next year. Its not illegal or anything. Its just you're paying more tax this year in order to offset some for next year.


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## Krusty the Klown (11 September 2009)

In this case you should be declaring a net capital LOSS of $1000. There is a box on the physical return to indicate this. So your capital gain will be -$1000

Next year when you do your return you should deduct this $1000 loss from any net capital proceeds and then declare that result on your return.


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## Krusty the Klown (11 September 2009)

posh said:


> yeah, i think that's correct. I've just been punching the numbers into etax, and the software forces you to deduct your losses from your gains as far as possible. is it permissible to 'forget'? since at face value it would only increase the amount you're taxed for a given year because your net gain increases.




In this case you can "forget". 

It's only when you "forget" anything that would result in you paying LESS tax than you should that it becomes an issue.

Here the item you "forget" to declare is a deductible expense. You can choose to deduct deductible items or not. You can declare all income and deduct nothing if you really want to - even though you can.

The ATO has no problems with you paying extra tax.


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## posh (11 September 2009)

problem with choosing to "forget" is that you actually have to declare the losses you carry forward to next year, as well as your net gains this for year and your current year gain. Manually, I can put, say:
Net Gain: $1000
Current year: $1000
Loss carried forward: $2000

But, on the etax software, this is not permitted, and the above figures are configured to become:
Net Gain: $0
Current year: $1000
Loss carried forward: $1000

That is all well, I suppose, if done manually. But I also wonder if I can divide a single deductible capital loss into more than one claim. So in my case, the $2000 is incurred as a result of one CGT event (a company collapse). Can I deduct $500 from my $1000 gain this year and carry forward $1500?
Net Gain: $500
Current year: $1000
Loss carried forward: $1500

It just seems counter intuitive to be able to pull apart a single CGT deduction.


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## prozac (28 September 2009)

I am not giving financial advice but can only state how I dealt with a loss years ago in my early trades. The accountant called it a "one off money making venture or scheme". There may be ways of dealing with small losses, but that is how we dealt with a big one.


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## drlog (8 March 2010)

How does this mix with the 50% discount?

Here is a situation (as an investor not a trader): 

Have a capital loss of $2000 in last FY. These shares were only held for 2 months.

Have a capital gain of $10000 this FY. These shares were held for 3 years and get the 50% capital gains discount.


Can that loss offset that gain?

So I guess it would be 10k-2k=8k/2= $4000 capital gain as far as I understand.

The reason I am asking is that the $2000 loss wasnt held for 12 months.


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## pixel (8 March 2010)

drlog said:


> How does this mix with the 50% discount?
> 
> Here is a situation (as an investor not a trader):
> 
> ...



As I unsderstand it, you can only carry over a capital loss if you're classified as a trader. Only your Accountant will be able to tell you for sure, but you may already find an answer here: 
http://www.ato.gov.au/businesses/content.asp?doc=/content/21749.htm&page=1#H1


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## drlog (8 March 2010)

jono1887 said:


> Trader
> - Income: can deduct from normal income
> 
> Investor
> - Investor: can deduct from other capital gains... losses can be rolled over to later years when you profit later on.




pixel, I think you can carry over a loss if you are an investor. If you are a trader, however, you can reduce your current income (which is even better!)

The question I have is: Can a 2 month loss in a previous year offset a 2 year profit this year?

Heh, the reason I ask is because I held CSS


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## Julia (8 March 2010)

drlog said:


> pixel, I think you can carry over a loss if you are an investor. If you are a trader, however, you can reduce your current income (which is even better!)
> 
> The question I have is: Can a 2 month loss in a previous year offset a 2 year profit this year?
> 
> Heh, the reason I ask is because I held CSS



Yes, you can carry forward a capital loss.


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## So_Cynical (8 March 2010)

drlog said:


> So I guess it would be 10k-2k=8k/2= $4000 capital gain as far as I understand.
> 
> The reason I am asking is that the $2000 loss wasnt held for 12 months.




That's how i understand it...makes no difference how long you held the loosing investment and applies if your not a trader.

Note im not an accountant or adviser of any kind.  but have done my own tax for the last 2 decades.


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## drlog (9 March 2010)

Thanks So_Cynical. Now I can move away from the worst investing mistake I have made


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## So_Cynical (9 March 2010)

drlog said:


> Thanks So_Cynical. Now I can move away from the worst investing mistake I have made




Yep shame Clean seas has fallen in a hole....i really liked there story, just lucky for me i never liked it enough to buy in....i really should cut lose my biggest loser as well.


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## Julia (9 March 2010)

So_Cynical said:


> Yep shame Clean seas has fallen in a hole....i really liked there story, just lucky for me i never liked it enough to buy in....i really should cut lose my biggest loser as well.



What's your biggest loser, So Cynical?  Why are you hesitant about giving it the chop?  Do you think it will rebound?


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## Eyeful (9 March 2010)

Go to the ATO website and search for share trader or share holder. There's information about how the ATO assess which category you fall into and the different treatments of gains/losses and dividend income.


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## So_Cynical (10 March 2010)

Julia said:


> What's your biggest loser, So Cynical?  Why are you hesitant about giving it the chop?  Do you think it will rebound?




CTO is my biggest loser, paid to much for it way back when (mid 07 i think, when i didn't really have a plan) and just kept on hoping, ive been openly critical of them in the CTO thread, and actually bit the bullet about 4 months ago and put in a sell order to crystallise my loss...but turned out i was half a cent to greedy, and subsequently the SP lost another 30% or so.

Somehow lucky because its the only stock i hold from my buys in 07 that i didn't average down into...and its the only stock that didn't bounce of the bottom for me...again also lucky because it wasn't a big buy in for me either i treated them like a specky and only put in specky money.

Right now sitting on a 80% paper loss with CTO, i suppose 1 complete dog outa 25 aint to bad going? all things considered...hesitant because i don't like losing money and no there's no chance in hell they will come good/rebound.


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## Julia (10 March 2010)

Thanks for explanation, So Cynical.  I'd never heard of CTO.  Just had a look at the chart and the last few days have seen the SP move above the MA for the first time in a while, so maybe it's on the road to recovery?

So having this happen still doesn't convince you about staying on a positive trend and getting out when that reverses?

Not directly related to this discussion, but there has previously been discussion about dollar cost averaging, something I don't see as particularly sensible.

Heard Paul Clitheroe (how do some of these people get to be regarded as gurus?) on the radio last night recommending this strategy.  I don't understand how they can suggest this is more logical than making an entry into a desired stock at an appropriate price level.


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## So_Cynical (10 March 2010)

Julia said:


> Thanks for explanation, So Cynical.  I'd never heard of CTO.  Just had a look at the chart and the last few days have seen the SP move above the MA for the first time in a while, so maybe it's on the road to recovery?
> 
> So having this happen still doesn't convince you about staying on a positive trend and getting out when that reverses?.




CTO up 20% today LOL...ive put in a sell order (high ball) and will hope the mystery rally continues :dunno: Julia i have had an almost perfect run buying new stocks on a falling SP, and averaging down into my older holdings over the last 16 or so months.

Its simply working for me...today out of a portfolio of 20 stocks ive got one hitting a new 12 month high (VRL), one hitting a 8 month high (HDF) two stocks within 2% of there 52 week highs (CPU & KSC) all paying divies at least twice a year and all brought at 40 to 70 discounts to there current SP's

Now you just cant do that if your buying an up trend and waiting for confirmation of a rally, waiting for the good announcements...i buy in anticipation of those good announcements coming. I think its fair to say the market behaviour and sentiment is really suiting me at the moment...im confident it wont last.


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## Julia (10 March 2010)

So_Cynical said:


> CTO up 20% today LOL...ive put in a sell order (high ball) and will hope the mystery rally continues :dunno: Julia i have had an almost perfect run buying new stocks on a falling SP, and averaging down into my older holdings over the last 16 or so months.
> 
> Its simply working for me...today out of a portfolio of 20 stocks ive got one hitting a new 12 month high (VRL), one hitting a 8 month high (HDF) two stocks within 2% of there 52 week highs (CPU & KSC) all paying divies at least twice a year and all brought at 40 to 70 discounts to there current SP's
> 
> Now you just cant do that if your buying an up trend and waiting for confirmation of a rally, waiting for the good announcements...i buy in anticipation of those good announcements coming. I think its fair to say the market behaviour and sentiment is really suiting me at the moment...im confident it wont last.



I can't argue with that, So Cynical.  Clearly you know the stocks you're buying into so that gives you the confidence to think they'll rebound strongly which they indeed seem to have done.

Good for you.   It does demonstrate that "rules" aren't always inviolable, and a discretionary approach has a lot to be said for it.


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## newbie trader (11 March 2010)

So_Cynical said:


> one hitting a new 12 month high (VRL)




Yay for VRL 

N.T


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## Nero64 (11 March 2010)

I have reduced my income with my losses 2 years now. I was involved in the CSS debacle as well and leveraged big using my own money of course. But AOE made a bit of it back for me. I still need a small miracle to be in the black though. 

Anyway make sure you document all your losses with statements and as far as I am aware you need to have a total trading volume = to 40-50K. But that's what the tax man told me. Something like that. Forgot now.


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## drlog (12 March 2010)

Nero64, I feel a similar pain to you 

Why would the volume have to be a specific range? Surely even a $100 capital loss could offset some of your capital gain?


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## nile244 (23 November 2011)

Well, according to me you should pay tax regularly.It does not matter how much capital you loss/gain...According to your capital gain you must pay tax.If you will not pay tax then  you may have to pay huge penalty.


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