Safest way to make capital gains... ideas?

[WinnieBlues]

Hi guys

I have approx 50k of loses from prev years, and 500k in the piggy.

What would people think is the safest way to make capital gains to offset these losses.

Time frame of a yr.

Thanks for all input....

 

[ROE]

capital loss can carry forward indefinitely so there is no rush
you can offset it any time, once you start to rack in CG.

maybe get some solid business and over 5-10 years horizon it may deliver you decent junk of
dividend and CG then you can decide what to sell to offset it.

hard to predict share movement whether a week or a year but over long period of time
share price rise track its increase earning

 

[PinguPingu]

capital loss can carry forward indefinitely so there is no rush
you can offset it any time, once you start to rack in CG.

Unless they change the tax law...

 

[qldfrog]

It is an interesting question, why is no one ie financial institution providing a Term deposit style unit where:
you buy one unit at 100$ today and can sell the unit back at 104 dollars in 367 days (just to be sure )
I am sure there is a market there
for the reason specified above; with inflation, you want to recuperate you CG losses ASAP, not carry onb paying taxes on your TD income...

Alternatively, have a fund who invest in bonds but is fully reinvested; such a fund unit price should steadily increase and lead to CG as a main income.
Anyone who knows about any such thing...I would be a taker
sounds too easy , simple and good to be possible with the ATO I must say?

 

[McLovin]

It is an interesting question, why is no one ie financial institution providing a Term deposit style unit where:
you buy one unit at 100$ today and can sell the unit back at 104 dollars in 367 days (just to be sure )
I am sure there is a market there
for the reason specified above; with inflation, you want to recuperate you CG losses ASAP, not carry onb paying taxes on your TD income...

Alternatively, have a fund who invest in bonds but is fully reinvested; such a fund unit price should steadily increase and lead to CG as a main income.
Anyone who knows about any such thing...I would be a taker
sounds too easy , simple and good to be possible with the ATO I must say?

As far as I know, income from discount securities (bank bills etc) are not considered a capital gain by the ATO. Effectively one could otherwise do what you describe to halve their tax rate. They generally look at function over form, and clearly the function is to reduce tax on what is essentially ordinary income.

 

[pinkboy]

As far as I know, income from discount securities (bank bills etc) are not considered a capital gain by the ATO. Effectively one could otherwise do what you describe to halve their tax rate. They generally look at function over form, and clearly the function is to reduce tax on what is essentially ordinary income.

Agree.

Basically the ATO can change the goal posts to suit themselves, and you have to lodge (and fight) a private ruling if you want to be 'creative'.

pinkboy

 

[McLovin]

Agree.

Basically the ATO can change the goal posts to suit themselves, and you have to lodge (and fight) a private ruling if you want to be 'creative'.

pinkboy

I don't think the ATO are really shifting the goalposts on this one. It would be rather creative to try and explain how interest income is morphed into a capital gain.

 

[WinnieBlues]

intersting ideas

was thkg abt managed fund...nice n safe...

ideas?

 

[Bill M]

intersting ideas

was thkg abt managed fund...nice n safe...

ideas?

There isn't any. I invested in some debentures with a "nice n safe" slogan attached to it and the company eventually collapsed causing me to lose 50% of my capital. The only guarantee I believe is the Governments Guarantee on approved bank deposits up to 250K. Everything else is at risk, no matter what they say.

 

[qldfrog]

As far as I know, income from discount securities (bank bills etc) are not considered a capital gain by the ATO. Effectively one could otherwise do what you describe to halve their tax rate. They generally look at function over form, and clearly the function is to reduce tax on what is essentially ordinary income.

Understood, but then what is the difference in essence with let's say the US where companies usually hardly give dividend and reinvest;Should the ATO jump on any company who reinsvest its profit?

It also makes sense in the economic world for a successfull company to reinvest; not get profit then taxed then send a huge part of what is left back as dividend and reduce growth a or needed investment;
The real issue is the 50% CG discount, and as a result as you mentionned above, the strategy I mentionned become a clear tax avoidance
When you start tinkering with a system, you end up with a mess:
welcome to the australian tax system where in effect you have to manage two streams for taxation:
capital gain and other income, and the nightmare at tax time between my trading as a trader (short term) vs my long term investment, sale of assets etc
Bring back a single tax rate with depreciation (CG should discount the inflation rate each year) and you have a far and simple system, but too many people have too much to loose in simplicity.
And we end up with a debt levy version 1...
my own rant..

 

[DeepState]

Hi guys

I have approx 50k of loses from prev years, and 500k in the piggy.

What would people think is the safest way to make capital gains to offset these losses.

Time frame of a yr.

Thanks for all input....

Hi

You have capital losses quarantined from income. You need to make capital gains to realise the tax asset. You want to do it safely. The tax department has increased its aggression on CGT wash sales. You need to get your own tax advice on this. However please see: Post #36 of "Does Portfolio Rebalancing Work" within the Stock Market Nuts and Bolts Forum to get some notion of what you are facing. Ves is a tax specialist.

The safest way is to hold capital gains instruments with a very high assurance of generating capital gain. Whilst direct bond holdings and income are taxed as income, I think - but do not know for sure - that ETFs are taxed on capital account. There is an ETF which invests wholly in government secutities : iShares UBS Treasury ETF (IGB-AU).

This distributes every three to four months. These distributions are taxable on income account. However, the unit becomes 'pregnant' with distributions ahead of the payment. To extract capital gains from this you will need to buy units after the distribution and hold them until just before the next distribution is made. There may be a need to leave a gap between purchase and sale to ensure that you are economically out of the position for a while even if this is not a wash-sale to generate or crystallise CGT losses. Ultimately you need to satisfy Part IVA requirements.

This will generate capital gains for you almost every time you do a loop on the purchase and sale. It doesn't matter if these are classified as near term CGT. You are just looking to get value for your CGT losses.

One key drawback is that interest rates for these units are quite low and it will take maybe 3 years to extract the losses. However, contrary to some views, the CGT losses are a tax asset and it is essentially a bond with zero interest. The longer you wait to extract it, the less it is worth to you in a present value sense. Others have mentioned legislative risk which increases with time...although I doubt offset from CGT losses will be eliminated as it then would make capital formation less attractive by a large margin.


Disclaimer: This is not advice of an investment of tax nature. They are just musings. I do not know your circumstances. I do not endorse BlackRock or any of its products, officers or associates.

 

[qldfrog]

However, contrary to some views, the CGT losses are a tax asset and it is essentially a bond with zero interest. The longer you wait to extract it, the less it is worth to you in a present value sense.

I indeed always saw it this way and am amazed at why this is not listed as a priority when dealing on the market: balance your CG losses to ensure you have no money lent at 0% to the ATO
Maybe because every one but me only do Capital gain, not losses!
Note: the problem is not really on anymore as I increased my trading and I became but for a small part a trader, not an investor

 

[Timmy001]

Its really very intresting ideas.