Australian (ASX) Stock Market Forum

Capital Gains Tax

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If you have made a profit yes.
If you held for 12 mths or more then the tax rate is 50% less.
 

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iantony said:
If I sell shares, and then use the capital to re-invest immediately, must I pay capital gains tax?
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Gday iantony :)
The answer is yes you have to pay capital gains , BUT only if youve made a profit on the transaction, whether it be shares/ property etc, net of buying and selling costs.
And If youve held that share/property for more than 12 months this is reduced.
Example. The profit made, gets added to all your other income, So if you earn say $50k per year net,( job ) you pay x tax. If you make an extra $50 k per year through say share trading, you now pay tax on $100k....

But if the $50k made was from
a share trade that was held for more than 12 months, then you get a 50% reduction,,, so $50k times 50% = $25k + $50 job income = $75k you now pay tax on...


AND
The New tax rates are....

Taxable income
Tax on this income

$0 – $6,000
Nil

$6,001 – $21,600
15c for each $1 over $6,000

$21,601 – $63,000
$2,340 plus 30c for each $1 over $21,600

$63,001 – $95,000
$14,760 plus 42c for each $1 over $63,000

Over $95,000
$28,200 plus 47c for each $1 over $95,000


The above rates do not include the Medicare levy of 1.5%.


So tax on $75k taxable income = $19,800.... that = about 25%.

What you have to remember is that capital gains is NOT an extra tax.
Quote from ato web site ..........:Capital gains tax (CGT) is not a separate tax, but a component of income tax. This means that capital gains are taxed at the rate that applies as a result of the level of your other taxable income.

IMO.. Capital Gains Is Not the "Big Bogey" , that its made out to be ( and never has been )....... Its made by people who dont know how it works.

And my finall advice is seek Professional advice...
And go to >>>>>>
http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm


:) :)
 
But what happens if you put 500 dollars on shares in a company and over a year later you put a further 250k on the same company and those shares are sold within a year, how does capital gains work then?
 
freja said:
But what happens if you put 500 dollars on shares in a company and over a year later you put a further 250k on the same company and those shares are sold within a year, how does capital gains work then?
Click to expand...
Works on a last in, first out basis. ie

2003 buy 10shares
2005 buy 500shares
2005.5 sell 510 shares.

Pay 100%cgt on 500 shares and 50%cgt on 10 shares.
 
markrmau said:
Works on a last in, first out basis. ie

2003 buy 10shares
2005 buy 500shares
2005.5 sell 510 shares.

Pay 100%cgt on 500 shares and 50%cgt on 10 shares.
Click to expand...

Hi Guys

Yes in your example that is correct - however the taxpayer has got the ability to say which shares they are selling. It doesn't have to be on a FIFO or LIFO arrangement. Usually you would just choose the one that gave the best tax result.

Using Waynes example - lets say that you only sell 10 shares in 2005.5. You would elect for them to be the ones purchased in 2003.

Duckman
 
My portfolio manager automatically sells the ones with the highest purchase price first, as that minimises the gain or maximises the losses. For my trading account, which doesn't get CG anyway, I think that's the best approach.

However, if the 50% CGT discount is an issue, then it may be better to sell the longest-held ones first - although if neither lot have been held for more than 12 months, then I think sell the most recently-bought ones first.

This is just my understanding and does not consitute advice.

GP
 
Holding shares for a year Vs trading in and out of them in less than a year.

If you hold shares for a year or more and then sell them then the CGT on the capital gain is discounted by 50%.

For example:

Say you held a certain share for over a year and then sold it with a capital gain of $1,000 i.e. Selling Price - Buying price= capital gain

Then the capital gains tax you would pay would be on 50% of that amount.

50% of $1,000 = $500

Your actual tax would depend on your marginal tax rate:
(15c in the dollar = 15% = 0.15 etc )

If:

15% -> then tax = 15% x $500 = $75; Profit = $1,000 - $75 = $925
30% -> then tax = 30% x $500 = $150; Profit = $1,000 - $150 = $850
42% -> then tax = 42% x $500 = $210; Profit = $1,000 - $210 = $790
47% -> then tax = 47% x $500 = $235; Profit = $1,000 - $235 = $765

If instead of holding them for a year you bought and sold them during a year (i.e. you never held them for 12 months straight) and made capital gains totally $1,000, then you would pay capital gains tax of:

marginal tax rate:

15% -> then tax = 15% x $1000 = $150; Profit = $1,000 - $150 = $850
30% -> then tax = 30% x $1000 = $300; Profit = $1,000 - $300 = $700
42% -> then tax = 42% x $1000 = $420; Profit = $1,000 - $420 = $580
47% -> then tax = 47% x $1000 = $470; Profit = $1,000 - $470 = $530


Comparing these figures gives the following results:

For the Long Term Hold (LTH) (1 year min.) Vs in and out a number of times within a year (STT).

To be equivalent you need to multiply the LTH profit rate by:

At marginal rates:

15% - 1.088
30% - 1.214
42% - 1.362
47% - 1.443

At a marginal rate of 15%:

If you have made a capital gain of 10% on your capital by the LTH method you would have had to make 10% x 1.088 = 10.88% by short term trading (STT) on that same amount of capital for your profits to be the same.

Say you invested $10,000 for a LTH and made 10% capital gains.

$10,000 x 10% = $1000
CGT = 15% x (0.5x$1000) = $75
Profit = $1000 - $75 = $925**

If you STT you would have had to made 10.88% yield for the profit to be the same:

$10,000 x 10.88% = $1088
CGT = 15% x (100% x $1088) = $163
Profit = $1088 - $163 = $925**

In summary:

For STT to be more profitable than LTH the yeild percentage has to be:

Margin rate:

15% - 1.088 times better
e.g. LTH yield 20% then STT must be better than 20% X 1.088 = 21.76%

30% - 1.214 times better
e.g. LTH yield 20% then STT must be better than 20% X 1.214 = 24.28%

42% - 1.362 times better
e.g. LTH yield 20% then STT must be better than 20% X 1.362 = 27.24%

47% - 1.443 times better
e.g. LTH yield 20% then STT must be better than 20% X 1.443 = 28.86%

These calculations do not consider other incomes, dividends etc.

Hope thats not double Dutch for anyone!

Cheers

Dutchie
 
Hi to whoever is reading this :)

Just a quick reminder (in case I missed it being mentioned earlier) in addition to the discussion that has gone on so far that tax rules vary depending on whether you have been classified as a trader or investor by the ATO.

eg....I believe traders can claim unrealised capital losses whereas investors cannot and I think the 50% discount on CGT does not apply to traders.

So if you 'trade' a part of your portfolio and 'invest' another part it can get messy unless you have very good and accurate records.

Anyway, just food for thought and something to keep in mind when looking at various tax options......best advice I can give is to talk to your tax adviser or ATO directly (they don't bite if you have nothing to hide ;))

see you in a week or so :)

bullmarket :)
 
dutchie said:
Holding shares for a year Vs trading in and out of them in less than a year.

If you hold shares for a year or more and then sell them then the CGT on the capital gain is discounted by 50%.

For example:

Say you held a certain share for over a year and then sold it with a capital gain of $1,000 i.e. Selling Price - Buying price= capital gain

Then the capital gains tax you would pay would be on 50% of that amount.

50% of $1,000 = $500

Your actual tax would depend on your marginal tax rate:
(15c in the dollar = 15% = 0.15 etc )

If:

15% -> then tax = 15% x $500 = $75; Profit = $1,000 - $75 = $925
30% -> then tax = 30% x $500 = $150; Profit = $1,000 - $150 = $850
42% -> then tax = 42% x $500 = $210; Profit = $1,000 - $210 = $790
47% -> then tax = 47% x $500 = $235; Profit = $1,000 - $235 = $765

If instead of holding them for a year you bought and sold them during a year (i.e. you never held them for 12 months straight) and made capital gains totally $1,000, then you would pay capital gains tax of:

marginal tax rate:

15% -> then tax = 15% x $1000 = $150; Profit = $1,000 - $150 = $850
30% -> then tax = 30% x $1000 = $300; Profit = $1,000 - $300 = $700
42% -> then tax = 42% x $1000 = $420; Profit = $1,000 - $420 = $580
47% -> then tax = 47% x $1000 = $470; Profit = $1,000 - $470 = $530


Comparing these figures gives the following results:

For the Long Term Hold (LTH) (1 year min.) Vs in and out a number of times within a year (STT).

To be equivalent you need to multiply the LTH profit rate by:

At marginal rates:

15% - 1.088
30% - 1.214
42% - 1.362
47% - 1.443

At a marginal rate of 15%:

If you have made a capital gain of 10% on your capital by the LTH method you would have had to make 10% x 1.088 = 10.88% by short term trading (STT) on that same amount of capital for your profits to be the same.

Say you invested $10,000 for a LTH and made 10% capital gains.

$10,000 x 10% = $1000
CGT = 15% x (0.5x$1000) = $75
Profit = $1000 - $75 = $925**

If you STT you would have had to made 10.88% yield for the profit to be the same:

$10,000 x 10.88% = $1088
CGT = 15% x (100% x $1088) = $163
Profit = $1088 - $163 = $925**

In summary:

For STT to be more profitable than LTH the yeild percentage has to be:

Margin rate:

15% - 1.088 times better
e.g. LTH yield 20% then STT must be better than 20% X 1.088 = 21.76%

30% - 1.214 times better
e.g. LTH yield 20% then STT must be better than 20% X 1.214 = 24.28%

42% - 1.362 times better
e.g. LTH yield 20% then STT must be better than 20% X 1.362 = 27.24%

47% - 1.443 times better
e.g. LTH yield 20% then STT must be better than 20% X 1.443 = 28.86%

These calculations do not consider other incomes, dividends etc.

Hope thats not double Dutch for anyone!

Cheers

Dutchie
Click to expand...


thx dutchie. But one also needs to consider brokers fees and gst. So in reality I suspect the total % would have to be a lot higher. Plus other associated costs, i.e. time watching the market etc.
 
bullmarket said:
eg....I believe traders can claim unrealised capital losses whereas investors cannot and I think the 50% discount on CGT does not apply to traders.
Click to expand...

That's right Bullmarket. One of the reasons it gets confusing is that if you are a trader you don't make captal gains or losses. They are simply business gains or losses.

Don't forget you need to keep track of your "opening" and "closing" stock balances at 30 June each year.

Bullmarket is right - it can get messy unless you have a good record keeping system. Certain computer software programs can be more troublesome for tax record than you would believe.

Duckman
 
And also remember too that if you are trading in your Super Fund the CGT is 15% for 12 months and 10% :confused: after that.

Currently I trade in three different entities and they each have different CGT calculations - Personal (as previously discussed) Super Fund (as above) and through a Company that buys and sells shares with its excess money. The latter never gets any CGT relief regardless of how long the shares have been held, and is alway taxed at 30%!


What is our taxation system coming to! :swear:
 
I heard that if u sell ur shares and put it into super fund, u pay no tax on the gains, and u only pay super tax of 15% when it is withdrawn from there...

Thoughts ?
 
Hi Nizar
I dont think it is as simple as that, but if you make undeducted super contributions then this may reduce your tax bill :confused:

This is one area you must seek your accountant's advice.

BTW, when you finally get to the age when you can draw down on your super, your super fund does not pay any CGT anymore. So if you can hold on to the assets of your super fund until then, there are huge tax advantages, but this may not be the best result if an investment is starting to go bad.
 
Prospector said:
And also remember too that if you are trading in your Super Fund the CGT is 15% for 12 months and 10% :confused: after that.

Currently I trade in three different entities and they each have different CGT calculations - Personal (as previously discussed) Super Fund (as above) and through a Company that buys and sells shares with its excess money. The latter never gets any CGT relief regardless of how long the shares have been held, and is alway taxed at 30%!


What is our taxation system coming to! :swear:
Click to expand...
Hi prospector. The company you mentioned, has it been set up just for trading or is it a company conducting other business? The 30% tax sounds good compared with other cgt
 
Hi Crackaton
The company we trade in is a consulting company that over the years we have tended to leave money in to build it up, rather than take it out as salary/salary sacrifice. SO over a period of about 10 years we have some excess cash that I use rather than just let it sit in the bank!

Mr P gets a tad frustrated when I make more money than he has in a consulting day's fees just through share trading :)
 
Rang the ATO and asked them this question:

I hold shares in a company called XYZ and have a stapled security attached to the FPO and must be attached for a period of 12 months and after 12 months they become unstapled so we end up with XYZ & XYZO my question is can I sell the options and claim the 50% discount as I held for 12 months or do I need to hold the options for a further 12 months? hmmmmmmm said the bloke.....hang on.......hang on ....... your'e there! ....yes ......I think you need to seek finanicial advise....I said what!! :swear: FMD it's not the first time I had trouble with the ATO what they are saying is "We don't know the answer BUT GET IT WRONG AND YOU ARE IN TROUBLE!"

cheers laurie
 
nizar said:
I heard that if u sell ur shares and put it into super fund, u pay no tax on the gains, and u only pay super tax of 15% when it is withdrawn from there...

Thoughts ?
Click to expand...

No Nizar - that is not correct. Some people could do that - eg a self employed person. However there is no legislation designed to allow tax relief for share investors who sell shares and roll the capital gain into a superannuation fund.

As I said - it is possible that you could take advantage of tax deductions for making contributions into super but it is has nothing to do with the scenario you mentioned. There are other factors you need to consider - ie are you receiving employer sponsored superannuation.

Regards
Duckman
 
laurie said:
"We don't know the answer BUT GET IT WRONG AND YOU ARE IN TROUBLE!"

cheers laurie
Click to expand...

I am sure everyone has had similar experiiences with the ATO. I asked them the simple question "Does the CGT on the sale of an investment property count as Income when submitting an annual Tax return" - the reason being I wanted to modify (reduce) an IAG but as we had incurred a CGT I didnt want to risk understating my income and therefore be fined!

Well, I received a three page letter back, with all sorts of gobbledeegook but they never answered my question. All I wanted was a simple 'Yes' or 'No' :banghead:
 

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