CGT and Personal Income Tax

[Taxtime]

Guys,

I have been out of the country for couple of years and only returned earlier this financial year. Some of the shares I bought back around 2010 significantly appreciated in value and I am sitting on large paper profits.

I want to sell and realise the profits but before doing so I am trying to understand what would that mean for me from personal income tax perspective.

If sold and in combination with the income from my job I would be looking at the top tax bracket i.e. 45% + 2% Medicare levy + 2% Budget repair levy + ~1.5% for Medicare levy surcharge + ? maybe there is more?

Bottom line - based on my limited understanding of the tax system I think that probably over 50% of my (currently unrealised) profits would go to ATO.

Don't get me wrong I am happy to pay the tax that may be rightfully due. Just want to make sure I am not making some big rookie error on this one (i.e. first proper profit on any of my share investments to date ).

Is there anything that I am missing or does that sound about right?

Thanks,
Taxtime

 

[McLovin]

You get a 50% discount on CGT.

Allows you to reduce your capital gain by:
50% for individuals (including partners in partnerships) and trusts
33 1/3% for complying super funds.
Not available to companies.
There are more rules for beneficiaries who are entitled to a share of a trust capital gain.

https://www.ato.gov.au/General/Capi...l-gain-or-loss/Working-out-your-capital-gain/

 

[Taxtime]

You get a 50% discount on CGT.

Yes I understand that, thank you.

Any other say more comprehensive alternatives?

My research is returning options such as:
Borrowing against the portfolio and claim back interest (?), setting up family trust and / or investment company, bringing forward other paper losses to offset (?)....

 

[Klogg]

Yes I understand that, thank you.

Any other say more comprehensive alternatives?

My research is returning options such as:
Borrowing against the portfolio and claim back interest (?), setting up family trust and / or investment company, bringing forward other paper losses to offset (?)....

Borrowing against the portfolio and claim back interest

You could do that, but what sort of risks does that introduce? And depending on the company/ies, you may not be able


setting up family trust and / or investment company

As I understand it, they're already in your name. In which case, you'd have to transfer them at market value, triggering a settlement event.
In simpler terms, the ATO would interpret that to mean you realised your profits and must pay tax on them as an individual.


bringing forward other paper losses to offset (?)

Sure, this is an option. But the question then becomes, are you better off selling these other investments instead of paying the taxable amount?
Also don't forget that any CGT discount is only applied net of losses. Said simply, if your gains are still larger than your losses, your tax bill will be:

(gains - losses) * 50%



May I ask - is your personal income lumpy between financial years? If it is, are you better off waiting until a year where income is not as high as usual? (if it dips below $180k that is).

 

[McLovin]

Any other say more comprehensive alternatives?

My research is returning options such as:
Borrowing against the portfolio and claim back interest (?), setting up family trust and / or investment company, bringing forward other paper losses to offset (?)....

If your intention is to realise the gains, I don't see much point in borrowing against the portfolio. You'd essentially be borrowing cash against cash.

You can set up a family trust going forward, but you can't shift assets into a trust without triggering a CGT event.

If you have paper losses these can be realised and used to offset gains. Unless you are a professional trader, you cannot use unrealised losses to offset realised gains. Also if you do realise those losses be careful of the wash rules if you intend re-taking a position.