Interactive Brokers

[Sharkman]

The problem that i see with the ATO method is that you can be loosing money but paying capital gains tax

Below is a hypothetical example

USD Ex rate AUD
Buy 100 1.07 93.46
Sell 90 0.92 97.83
Capital Gain = AUD 4.37

Since we are borrowing money to buy shares, in IB accounts the transaction is actually a loss of USD 10 or AUD 10.87

isn't that where that ADE obligation to pay IB comes in?

in your example when you bought 100 USD of stock you took on a short 100 USD cash position to do so, equivalent to 93.46 AUD at the time.

by the time you sold the stock, that short 100 USD cash position is now equivalent to 108.70 AUD. so you have an FX loss of 15.24.

as i understand it the FX PNL counts as a normal loss not a cap loss, so it can be used to offset any income, including that 4.37 cap gain, so net net you still end up with the 15.24 - 4.37 = 10.87 loss as you said.

i could be wrong. apologies if the above is misleading, i'm only just starting to consider taking on positions in foreign currency denominated assets myself and am also trying to get a handle on all this.

 

[bellenuit]

what if one avoids carrying a cash position in the foreign currency?

from your eg. what if you were to square up your USD cash position by selling 95,238 AUD/USD @ 1.05 immediately after buying 100k USD shares. then on selling, square it up again by buying 133,333 AUD/USD @ 0.90.

would it then be only necessary to declare 38,095 AUD capital gains, with nothing further needed, since the obligation / cessation of obligation to repay IB in USD has been neutralised by squaring the USD cash position after each trade?

From the way I have read the ATO site re Forex, I believe you are right. You do not have to calculate forex gains and losses if you immediately square out your USD position as there isn't any forex gains or losses, other than the forex gain imbedded in the Capital Gain. This yields some interesting results.

I'm going to extend my example so as to compare apples with apples. In my example we ended up with USD20K in the account which had been deposited when the exchange rate was 0.90. Let's say we immediately draw this out by doing a AUD.USD Forex transaction and we get the same 0.90 rate. This means we now have AUD22,222 in cash. I'm ignoring commissions. This final transaction should have no forex implications as the deposit and withdrawal rates are the same.

So by my example, this is the end result (all in AUD):

Cash Position: 22,222
Reportable Capital Gain 38,095
Deduction due to Forex Loss 15,873

Your example by immediately squaring off:

Cash Position: 133,333 - 95,238 = 38,095
Reportable Capital Gain 38,095

To keep things simple, let's say you remain completely in the 37% tax band due to these transactions, we ignore medicare and other levies, we don't have CGT carry forward losses and the CGT discount doesn't apply to this trade.

The net tax effect is:

Not Squaring off: a (38,095 - 15,873)*0.37 tax liability = 8,222
Squaring off: a 38,095*.0.37 tax liability = 14,095

When you subtract these from your end AUD cash positions after the trade you have (22,222 - 8,222) = 14,000 if not squared off or (38,095 - 14,095) = 24,000 if squared off. That is an AUD10,000 difference

So it seems squaring off, using this example, means you end up better off and have less calculations to do.


I'm trying to understand the underlying reason that the outcomes are different. As far as I can see, by squaring off you made a foreign currency bet that worked in your favour and was non-taxable. e.g. you bought USD100K at 1.05 and you later sold USD120K proceeds (which now includes a USD20K capital gain) at 0.90 (AUD 133,333). All non-taxable forex wise due to the way it was done. This was a non-taxable profit of 38,095 which also is the same at the taxable CG of 38,095, but the latter is only taxed at 0.37, assuming no CGT discount (meaning overall you are wealthier by 38,095 * 0.63 =AUD24,000). By not squaring off, you incur a forex loss of AUD15,873. If you could recuperate that 15,873 fully you would be exactly the same as the squaring off case, but because of the tax system, you can only recuperate 15,873*0.37 of it, or 5,873. So you "lost" AUD10K of the forex loss and that is why there is a AUD10K difference between the two outcomes.

You method worked in your favour because the Australian dollar fell in value. If it had risen, it would have worked against you. I won't work through an example, but it should be clear that your squaring off will mean that instead of having a non-taxable cash win, you will have a non-taxable deductible cash lose. In the non-squaring off case, you will have forex gains instead of losses, but they only add to your tax liability at the 37% rate, whereas your non-taxable cash "lose" from squaring off cannot be used to offset anything.

That's my take, but as I mentioned earlier, I'm not an accountant and no expert, so don't rely on my opinion.

 

[bellenuit]

I've been thinking about the above squaring off method and I still believe that they are non-taxable transactions as I was assuming in my previous post. In an earlier post I mentioned that been a share trading account, one buy or sell transaction effects two tax elements CGT and Forex, but are treated independently. From the Forex point of view, the fact that the obligations assumed and satisfied are for buying CGT assets is irrelevant. The Forex treatment is a separate calculation.

Looking at the squaring off method above, from the forex point of view, rather than buying and selling shares, this could be the case. You have two brothers living in the US. You owe one USD100K and the other owes you USD120K. You pay the first brother USD100K from your IB USD account and then square it off by a AUD.USD transaction at the prevailing rate funding it from your base currency account. A few weeks later, your other brother pays you the USD120K he owes you by a direct deposit into your IB USD account. You immediately transfer that out to your base currency account at the prevailing exchange rate. That is no different to what was done in the previous post (from a forex perspective) and as far as I can see, that has no tax implications.

I think it would be different if these squaring off transactions were part of a forex trading business activity, but this is not the case here.

 

[Sharkman]

yep squaring up your USD cash position like that is essentially taking on a short AUD/USD position at the same time, as well as repatriating your profit immediately once it crystallises. so it makes sense that it will end up resulting in additional PNL if AUD falls. by buying 100k USD @ 1.05 and selling 100k USD @ 0.90 that will make you an extra 15,873 AUD gross. it still gets taxed though - the 10k diff is what's left after paying the 37% tax on the extra 15,873 of gross profit.

so i don't think there's anything weird about the raw numbers in the outcome per se - the question is, how are you meant to split it across income types for tax purposes? is it just blended in with the capital gains, or must the FX profit be split off first, and considered as FX profit, then CGT paid on the remaining 20k USD using the FX rate at the time the USD profit was crystallised?

it still sounds a bit odd if the former is how they treat it. for eg. if you did that pair of FX spot trades by themselves, i imagine that would be considered 15,873 AUD of forex gain under income section 24, not as a capital gain - and therefore would count as normal income that cannot be offset by capital losses. but if you did those FX spot trades in combination with a trade in a foreign currency denominated asset, it suddenly gets merged in with that and the whole thing takes on the form of a capital gain? so if one had some retained capital losses, you could potentially use them to neutralise the tax you would otherwise have had to pay on forex gains, if you just trade something on the NYSE along with it (assuming you do actually want the position in whatever NYSE thing(s) you're trading - it would be kinda shooting yourself in the foot to spite the tax man if you didn't want it!)

of course it would also happen the other way so if AUD/USD actually appreciated then you'd end up with a capital loss instead of a normal loss which you'd declare under deductions section 15...

 

[pavilion103]

If anyone knows....

I'm trading futures. If I'm in a long trade. I know that I can have a stop order above current price.

If I want to get out of the trade if it FALLS to a certain level. I can use a limit buy order.

Is there anyway to link these two so that one cancels the other. When one is triggers,the other order is cancelled?

Thanks

 

[skc]

If anyone knows....

I'm trading futures. If I'm in a long trade. I know that I can have a stop order above current price.

If I want to get out of the trade if it FALLS to a certain level. I can use a limit buy order.

Is there anyway to link these two so that one cancels the other. When one is triggers,the other order is cancelled?

Thanks

http://www.interactivebrokers.com/en/?f=%2Fen%2Ftrading%2Forders%2Foca.php

You seem to have your stop and limit terminology round the wrong way...

 

[pavilion103]

http://www.interactivebrokers.com/en/?f=%252Fen%252Ftrading%252Forders%252Foca.php

You seem to have your stop and limit terminology round the wrong way...

Sorry!!!! Short trade I meant.

Thanks for the link.

 

[pavilion103]

Sorry short trade I meant!!!!

Thanks for the link

 

[blue0810]

Yes you're right the amount received is wrong for me too and its all related to "payment in lieu of dividend" on the activity statements. Anywhere I got one of these then they have used that exact amount for the franked/unfranked amount and the rest of the dividend payment is the "amount received". So I can see what they've done but it still makes no sense to me.

I'm wondering if you bought these stocks very close ex-div.

 

[geeroy]

I'm wondering if you bought these stocks very close ex-div.

Yes, the day before. since learnt from this forum you had to buy at least 2 days before ex div with no margin to avoid PIL

 

[So_Cynical]

I got the Email today

Dear IB Customer,

Congratulations! Interactive Brokers has approved your application for account XXX

I'm really very excited cashed up with an IB account and some new portfolio ideas..this is gona be fun, feel like im ready to play with the big kids now.

 

[blue0810]

...
anyone know if there is in fact a way to designate how many units of which parcels you're disposing of when you sell?

Perhaps "IB Tax Optimizer" tool

 

[So_Cynical]

I got the Email today

Dear IB Customer,

Congratulations! Interactive Brokers has approved your application for account XXX

Im struggling a little with IB and its rattled my confidence in my new broker, Just wondering if anyone on this forum doesn't understand what is meant by the following statement.

"Please just transfer the four stocks listed to IB, not the whole account"

I cant be just me or a cultural (HK) thing can it? for mine its a clear unambiguous statement and yet my customer service guy in HK (i assume) seems to be struggling to understand it. :dunno:

 

[Smack]

what is the australian contact to start an ib account for asx equities?

smack

 

[skc]

Im struggling a little with IB and its rattled my confidence in my new broker, Just wondering if anyone on this forum doesn't understand what is meant by the following statement.

"Please just transfer the four stocks listed to IB, not the whole account"

I cant be just me or a cultural (HK) thing can it? for mine its a clear unambiguous statement and yet my customer service guy in HK (i assume) seems to be struggling to understand it. :dunno:

The helpdesk is often frustrating but I accept that comes with IB being a discount broker. The cultural thing is a factor too and you need to make sure you use languages that are absolutely clear.

I can guess what you are trying to do but without context I wouldn't call your statement unambiguous...

Four stocks? Do you mean four positions or four (number of) stocks/shares?

Not the whole account? Which account?

May be try something like...

"Transfer the following positions from my Comsec acct 123456 to my IB account U123456.
2000 XXX, 1000 YYY, 100 ZZZ and 50000 JJJ"

That's how I would have given the instruction.

 

[So_Cynical]

May be try something like...

"Transfer the following positions from my Comsec acct 123456 to my IB account U123456.
2000 XXX, 1000 YYY, 100 ZZZ and 50000 JJJ"

That's how I would have given the instruction.

Ok yep that's what i should of done...

 

[payday]

I hardly ever call IB - I always use their message centre in account management. They are usually quite quick in replying (during US trading hours).

 

[aarbee]

I have been using IB for a few months and am very pleased with the platform.
I do have one query.
I haven't been able to find a good way to download history of my trades in chronological order for the last 3 months to copy and paste into MS Excel.
All I am interested in is date/time of trade, name of issue, entry price and exit price, commission.
I have seen various ways that info on past trades can be extricated from the IB platform but none in a simple chronological order that can be copied to be pasted in Excel spreadsheet.

If the question has already been asked, I will appreciate if you could point me to the relevant thread.

Cheers

 

[Trembling Hand]

In TWS Go Account > Account Management Home > Report Management > Customize Statements

And play around with the options there until you get the info you need. Save as Custom statement then download it and copy & paste into Excel.

 

[skc]

I have been using IB for a few months and am very pleased with the platform.
I do have one query.
I haven't been able to find a good way to download history of my trades in chronological order for the last 3 months to copy and paste into MS Excel.
All I am interested in is date/time of trade, name of issue, entry price and exit price, commission.
I have seen various ways that info on past trades can be extricated from the IB platform but none in a simple chronological order that can be copied to be pasted in Excel spreadsheet.

If the question has already been asked, I will appreciate if you could point me to the relevant thread.

Cheers

Log into account management, go to Reports > Activity > Flex Queries and check only the fields you want.