Does Capital Gains affect the way you invest?

[Glenhaven]

The thread is interesting because the reasons are different than for me.

I hold most of my shares for a long time and with these I have no intention of selling if I think the market will fall. The major reason is the capital gains tax.

For example St George Bank floated at $1.50 so a sale means nearly 50% of the sale price is taxable. If you sell you get approx 75% of the sale price after tax which you then need to invest in something that provides at least a 33% better return than St George to break square. A big ask.

So with most long term investments I have a problem with selling. If I was certain I could pick a big fall then I would consider it, but you are never sure and would probably get it wrong anyway.

I have a smaller amount of shares which are trading, and if you are a trader then capital gains tax does not apply and you are taxed on the total profit anyway. So in this caes capital gains has no impact.

I keep the my trading and investment activities separate.

 

[Uncle Festivus]

12 months on and a totally different climate. So anybody doing it any differently now - tempted to take the profits of the last 4 years and pay the capital gains, or are we still hanging in there waiting for the light at the end of tunnel?

(yes 24, no 30)

 

[MRC & Co]

Personally, CGT does not stop me taking profit.

Of course, if I was very close to the 12 month mark (days or perhaps weeks) and wanted to sell due to whatever reason, I could act differently, but this has never happened to date.

So another "no" vote here!

 

[Julia]

12 months on and a totally different climate. So anybody doing it any differently now - tempted to take the profits of the last 4 years and pay the capital gains, or are we still hanging in there waiting for the light at the end of tunnel?

(yes 24, no 30)

Yes, definitely. I've taken profits of about 80% of my p/f, am holding only those with minimal debt which I am pretty certain are good for the long term.
Quite happy to accept 7% in cash a/c in the meantime. Won't be buying anything until I see some stability return.

 

[zarfius]

I am a beginner investor so correct me if I'm wrong, but I feel that more money can be made with several trades over a long period of time vs buy and hold in a certain situations.

Lets take a hypothetical situation (it may be a lot hard in real life.. lol).

Lets say you buy 5000 stock A for $1.00 per share = $5000. After 6 months the share is up to $1.50 but after 12 months it has fallen to $1.25.

If you sell at 6 months you end up with:
(5000 x 1.50) - $70 brokerage = $7430
and at the end of the year you pay $1215 in CGT = $6215

If you sell at 12 months you end up with:
(5000 x 1.25) - $70 brokerage = $6180
and you don't pay the CGT at the end of the year.

In this example, over 12 month's your profit is the same, however, what are you doing with the money in the mean time.

If you sold after 6 months, you would have $7430 to invest in something else:
This time you buy 7430 stock B for $1.00 per share. After the remaining 6 months this share goes up to $1.25 and you sell for $9287.50

Your overall capital gain for the year is 9287.50 - 5000 = 4287.50 and the CGT you pay at the end of the year is $2143.75 so you end up with $7143.75 to play with next year.

Buy and hold = $6180
Buy sell, buy sell = $7143.75

There's a lot of math here and I have probably made a couple of mistakes, but it's something to think about anyway

 

[bvbfan]

A lot depends on your marginal tax rate.
Highest being 46.5%

Now if you hold for a year you still pay tax effectively at 23.25% if highest tax rate. (50% discount on capital gains)

On your example
6months you'd pay 2430 x .465 = 1130

12months you'd pay 1180 x .2625 = 309.75