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[Newbie Question]

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Gray

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Hi Everyone,

Hope everyone is doing well. I have a question. If I buy 100 shares of BHP at $30, then I buy another 100 BHP shares for $32. Then I sell 100 shares at $34, how is profit calculated? Which 100 BHP shares have been sold?

Thank you
 
Price is averaged
In your case average buy price is $31
Less of course brokerage.
 
You can choose which parcel to sell. Obviously if you use the parcel you paid $32 for as the one you sold, then if you later sell the other half you have to use the $34 parcel.

Generally an investor would take into consideration tax liabilities to make the decision, as an example i might sell off parcels with a higher cost base if I dont have any losses to offset the capital gains, but in a year with losses to offset I may choose to sell a parcel with a very low cost base.
 

?????
Your buy price is averaged
Your sell price is averaged if you sell different parcels.
Tax liabilities dont alter?
 
You spent a total of $6200 for 200 shares so 100 shares has a market value of $3100. If you sell 100 shares at 34 (which is 3400), you will make a profit of $300. Remember to add your brokerage fees into the calculation though.
 
Galumay

I buy 10000 at $1. 1/2/2020
Then 10000 at $1.40 1/3/2020
Then sell 5500 30/6/2020

Whats my profit and what am I taxed on?
 
tech/a said:
Galumay

I buy 10000 at $1. 1/2/2020
Then 10000 at $1.40 1/3/2020
Then sell 5500 30/6/2020

Whats my profit and what am I taxed on?
Click to expand...

As per the ATO, you can choose what parcel to 'link' the sale with, or you can use a first in, first out approach. Either way you need to split the chosen parcel into 2, so 5500 & 4500 shares in your records.
Your profit will depend on your sale price and which parcel you choose to use for your cost base, you will be taxed on the capital gain resulting.

So, expanding your example,

10,000 at $1
10,000 at $1.40

sell 5500 at $2

if you use first parcel

5,500 sold, 4,500 left at $1
10,000 at $1.40
5500 sold for $2

profit of $11,000-$5500=$5500 - you will pay CGT on this less costs

if you use second parcel,

10,000 at $1
5,500 sold, 4,500 left at $1.40
5,500 sold for $2

profit of $11,000-$7,700=$3300 - as above.
 
The example provided by @galumay is based on the assumption you are treated by the ATO as an investor in shares (i.e.) profits/losses are of a capital nature and not that of a share trader.
 
Aghh...didn't think of that, hence the Duck's confusion and me wondering why he didn't automatically understand what I was saying!
 
Thanks for all the replies everyone.

So it sounds like it all depends on how you are viewed by ATO? Share Trader or Investor.
How do you determine which camp you fall into?
 
if you don't know, then you are an investor.

everyone is an investor by default, to get reclassified as a trader you have to prove to the ATO that you are conducting trading as a business activity. they will look at things like business plans, record keeping, frequency + size of transactions, possibly some other things as well.

they won't look at your tax returns and automatically go "ok that meets the criteria, you're a trader now". you have to ask them for it and provide whatever proof they ask for as above, before they will grant you that classification. that's why if you were a trader, you would already know about it.

in recent years (though not anymore as i'm too busy with my regular job now) i used to do 300-400 options trades a year, most of those would have involved enough contracts to cover at least 100K of underlying if exercised, i did all this thru a corporate trust, i have spreadsheets with the necessary Black-Scholes calculations along with records of every single trade and commentary on why i put each one on, what market movements i was looking for, what the market was showing at the time (implied vols, delta skew etc.) and what i thought of those numbers. so i probably could have qualified as a trader with all that, but i opted to stay an investor as it suits my purposes better, and i have yet to receive any communications from the ATO telling me that i need to consider myself as a trader rather than an investor.
 
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