Calculating and minimising capital gains on trades within year

[milsnips]

hi there,

I'm a bit unclear on what/how the calculations need to be done (including factoring in brokerage etc) if i do say a number of trades such as following. Lets say hypothetically all brokerage fees are $29 per trade


1/1/2015 - buy 1000 ABC shares @ $1.00 + $29 brokerage
15/1/2015 - sell 500 ABC shares @ $1.20 + $29 brokerage
20/1/2015 - buy 5000 ABC shares @ $1.05 + $29 brokerage
1/2/2015 - sell 3000 ABC shares @ $1.150 + $29 brokerage
2/2/2015 - sell 1000 ABC shares @ $0.90 + $29 brokerage
10/2/2015 - buy 500 ABC shares @ $1.20 + $29 brokerage


using the above example i'd have 2000 shares still in holding.
How would i calculate this lot of trading and is there any particular way to minimise capital gain?

thanks for any input!

 

[ThirtysixD]

hi there,

I'm a bit unclear on what/how the calculations need to be done (including factoring in brokerage etc) if i do say a number of trades such as following. Lets say hypothetically all brokerage fees are $29 per trade


1/1/2015 - buy 1000 ABC shares @ $1.00 + $29 brokerage
15/1/2015 - sell 500 ABC shares @ $1.20 + $29 brokerage
20/1/2015 - buy 5000 ABC shares @ $1.05 + $29 brokerage
1/2/2015 - sell 3000 ABC shares @ $1.150 + $29 brokerage
2/2/2015 - sell 1000 ABC shares @ $0.90 + $29 brokerage
10/2/2015 - buy 500 ABC shares @ $1.20 + $29 brokerage


using the above example i'd have 2000 shares still in holding.
How would i calculate this lot of trading and is there any particular way to minimise capital gain?

thanks for any input!

You cant do much without a > 12 month period
For trades all you can really do is calculate proceeds less costs

Once shares are eligible for CGT discount you can decide which parcel goes where in order to minimise tax.
month 1 - paid 10 ea for 100 shares
month 2 - paid 11 ea for 100 shares
month 6 - sold 100 shares for 12 ea
13 months later - sold 100 shares for 14 ea

10 allocated to 14
11 allocated to 12

400 gain less 50% cgt discount = 200 gain
+ 100 gain (no discount as <12 months) = 300 gain total

Loss harvesting is also worthwhile (just don't buy back the same amount of shares 1 day later!)

 

[skc]

You cant do much without a > 12 month period
For trades all you can really do is calculate proceeds less costs

Once shares are eligible for CGT discount you can decide which parcel goes where in order to minimise tax.

Two separate matters.

- You can minimise CGT payable with or without holding being >12 months. You simply allocate the highest cost parcel to be sold first.

- If you are making heaps of buys and sells over a short period, one could start to debate whether these should be considered trading income or capital gains from a tax perspective. The treatment for trading is a different method altogether.

 

[ThirtysixD]

Two separate matters.

- You can minimise CGT payable with or without holding being >12 months. You simply allocate the highest cost parcel to be sold first.

but if its less than 12 months the total realized gain will be the same!

 

[rnr]

but if its less than 12 months the total realized gain will be the same!

In the example put forward by the OP the Capital Gain can differ by a maximum of $13.40 even though the holding is below 12 months (Allocate 3000 of the shares bought on the 20th Jan to the shares sold on 1st Feb).

Whilst the difference in the amount of the gain, in this example, is insignificant, the difference could be significant given another example spanning a 12 month period.

 

[skc]

but if its less than 12 months the total realized gain will be the same!

No. There will be difference depending on which parcel is allocated to the sell.

1/1/2015 - buy 1000 ABC shares @ $1.00 + $29 brokerage ($1.029 per share)
15/1/2015 - sell 500 ABC shares @ $1.20 + $29 brokerage
20/1/2015 - buy 5000 ABC shares @ $1.05 + $29 brokerage ($1.0558 per share)
1/2/2015 - sell 3000 ABC shares @ $1.150 + $29 brokerage
2/2/2015 - sell 1000 ABC shares @ $0.90 + $29 brokerage
10/2/2015 - buy 500 ABC shares @ $1.20 + $29 brokerage

using the above example i'd have 2000 shares still in holding.

With this example there is really 2 buys. Parcel A = 1000 @ $1 and Parcel B = 5000 @ $1.05. There are sales totaling 4500 shares, with net proceed of $4,863. So the choice is really simple. As the first sale occurred before parcel B was bought, there is no choice but to have it come from parcel A.

1. 500 from parcel A and 4000 from parcel B. Total cost base = 500x$1.029 + 4000 x $1.0558 = $4737.
2. 1000 from parcel A and 3500 from parcel B. Total cost base = $4724.

In this case, you'd choose option 1 to minimise CGT as Parcel B has a higher cost base.

The difference is tiny but the idea is the same.

Here's a decent description on how this portfolio software does it.

http://help.sharesight.com.au/capital_gains