Taxation and capital losses/gains

[posh]

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?

 

[robe4]

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

 

[titus]

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.

 

[trainspotter]

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.

 

[jono1887]

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.

 

[RamonR]

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.

 

[edaranjo]

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.

 

[Krusty the Klown]

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.

 

[stardust1984]

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

 

[Pallen]

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.

Hi Ramon,

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

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.

 

[Krusty the Klown]

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

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.

 

[RamonR]

Hope that helps.

Thanks for the reply Pallen.

It does help.

 

[posh]

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?

 

[AlterEgo]

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

 

[jono1887]

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?

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.

 

[posh]

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.

 

[jono1887]

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.

 

[Krusty the Klown]

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.

 

[Krusty the Klown]

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.

 

[posh]

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.