Sell in June for Capital Losses

[Captain G]

Hi All, I'm very new at all of this and I will be the first to acknowledge that I'm a bit slow/thick when it comes tax etc, however a fellow at work told me that June is tax loss selling month. He said he takes capital losses on shares before the end of this month - sells stocks that have gone down to offset this year’s capital gains. He quickly tried to explain it to me, but I couldn't quite get it, so he just fobbed me off. To be honest it was very embarrassing !! Can someone help me with a working example ??
Many thanks, Capt G.

 

[laurie]

Hi All, I'm very new at all of this and I will be the first to acknowledge that I'm a bit slow/thick when it comes tax etc, however a fellow at work told me that June is tax loss selling month. He said he takes capital losses on shares before the end of this month - sells stocks that have gone down to offset this year’s capital gains. He quickly tried to explain it to me, but I couldn't quite get it, so he just fobbed me off. To be honest it was very embarrassing !! Can someone help me with a working example ??
Many thanks, Capt G.

What he is saying if you have shares that have made a loss you can off set them against shares that you made a profit on so say you purchased shares in ABC for a total of $10000 and you needed cash in a hurry but the sp was lower and you got $9000 instead then you took profit on XYZ of say $12000 so the difference is $3000 that you pay tax on now if you did not have capital gain to off set losses this tax year you can carry the loss into next year and so on until you have a capital gain to claim the loss against

cheers laurie

 

[Captain G]

Thanks greatly Laurie for your reply. I think I understand now. I never knew/realised the ATO would let you do that. I've only been trading for the past 3 months. I thought if I made a loss, that was it, I had to just wear it.

Now for my own situation, because the market has undergone this recent steep correction, I got scared and sold out most of my holdings last week. The result is that I've made total losses of about $2500 and a capital gains of $7000. Therefore, if I have understood your example rightly, this financial year I only pay tax on the difference which is $4500. Is this correct ?? So having a loss is not the end and be all !! I thought I'd have to pay the tax on the full $7000 gain, and then I'd have too just absorb the $2500 loss, with no avenue for off set.

Does this apply to all investments, such as real estate ??

Many thanks, Capt G.

 

[coyotte]

think you will find you must have held the share/s that you are claiming for a capital gain/loss for a min of 12mths +1day
you also must take in account CPI tables as published by ATO
there is no taxation reason that i've encounted that implies you can only sell in june


if you have held the shares for less than 12mths -- but within this financial -- then profits = (gains-losses) --- don't for get to include costs like -- brokerage, any subscribtions (mags , newsletters, services , ISP etc)

might be an idea to use a tax agent this year to get the hang of it --- then do it yourself

 

[bullmarket]

coyotte

According to my understanding, your statements:

think you will find you must have held the share/s that you are claiming for a capital gain/loss for a min of 12mths +1day
you also must take in account CPI tables as published by ATO

are not correct.

You can claim capital gains and/or losses in the financial year they occured in even if you held the assets for just one day. It appears to me you are actually talking about the 50% capital gain discount whereby if you held an asset for at least 12 months then only 50% of the capital gain on disposal of the asset is taxable.

You also don't have to take CPI indexation into account anymore. It used to be an option if it worked out that CPI indexation of the asset's cost base resulted in a lower taxable capital gain than the 50% discount rule gave but I'm not sure if indexation is still aloud....but even if it is it definitely isn't a 'must do' as you stated.

cheers

bullmarket

 

[Prospector]

You can sell at any time to realise capital gains/losses, it is just that June is the tidy up month for the current financial year.

Anything that is subject to capital gains tax is treated this way - there is a list on the ATO web I think

Ah Mr Bull we posted at the same time! The discount method is still allowed for assets held before, hmmm, 1998??? I will encounter that one this time with an investment property we sold. And yes, agree about the 50% deduction for assets held in personal name for 12 months+, 30% ALWAYS (ie no discount) for assets held in a Company name, and 15% for Assets in a Super Fund, unless you have reached the golden age of 55 and have already drawn down a pension in which case there is no capital gains.

And as usual, always contact your advisor for advice.

 

[son of baglimit]

OF COURSE JUNE BEING 'TIDY UP' MONTH MEANS JUNE IS ALSO 'BUY' MONTH, WITH THOSE FALLING COMING INTO AT TIMES RIDICULOUS PRICES - SO GET THE CASH TOGETHER AND START BUYING UP AT THE LOW PRICES, ESPECIALLY IF YOUR CONFIDENCE IN THEM IS LONG TERM....LIKE NMS...got a ramp in there.

 

[nizar]

OF COURSE JUNE BEING 'TIDY UP' MONTH MEANS JUNE IS ALSO 'BUY' MONTH, WITH THOSE FALLING COMING INTO AT TIMES RIDICULOUS PRICES - SO GET THE CASH TOGETHER AND START BUYING UP AT THE LOW PRICES, ESPECIALLY IF YOUR CONFIDENCE IN THEM IS LONG TERM....LIKE NMS...got a ramp in there.

yes normally stocks that have been shocking the last 11 months go even lower in June for this reason... eg. MAP, TLS

but i see no reason for the star performers to get sold down

 

[son of baglimit]

article out today on the topic

http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=A799C851-3048-5296-A241FDC0DC647F5D

 

[RichKid]

article out today on the topic

http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=A799C851-3048-5296-A241FDC0DC647F5D

Thanks baglimit, they mention some dogs, a few may be the stars of tomorrow (or the week after!):

What are the candidates for selling? Looking across a few brokers there are some stand-outs which meet the criteria of poor performance and poor prospects, although there is division on the latter. Telstra (TLS) and Telecom NZ (TEL) are popular, and who'd buy into telcos anymore. McGuigan Simeon (MGW), Coca-Cola Amatil (CCL), Macquarie Infrastructure (MIG) Suncorp-Metway (SUN) and DCA Group (DVC) rate highly as contenders. There are a wealth of others that have provided negative returns for the year and as such become potential targets, despite current recommendations

 

[Prospector]

McGuigan Simeon (MGW), Coca-Cola Amatil (CCL), Macquarie Infrastructure (MIG) Suncorp-Metway (SUN) and DCA Group (DVC) rate highly as contenders. There are a wealth of others that have provided negative returns for the year and as such become potential targets, despite current recommendations

I think DCA Group have been massively oversold; having said that I offloaded some of these a few months ago in my short term holdings after some nice profit, but retained others in my long term Super Fund. They are a monty Long term buy for me!

 

[Smurf1976]

Don't forget to include costs such as brokerage in your capital gain / loss calculations.

And remember that capital losses can be carried forward to future income years. So if you had gains of $10,000 this year and losses of $15,000 then you pay no tax on capital gains this year and you carry the unused $5000 capital loss forward to next year. If you then made a gain of $6000 next year you use the $5000 loss from this year to reduce that to $1000 (so you only pay tax on the $1000 amount next year).

 

[bullmarket]

I know tax loss selling is popular but I think people should also remember that all tax loss selling does is reduce the amount of CGT to be paid in the current year whilst potentially increasing the amount of CGT payable in the following year if there are no losses to offset any cap. gains in future years.

eg.....say you have $10k in realised capital gains this year and $4k in unrealised losses and for simplicity's sake a 40% tax rate.

If you don't realise that $4k loss this year then the CGT payable would be:

$10000 x 0.40 = $4000

If you do realise the $4k loss then the CGT payable will be:

$6000 x 0.4 = $2400

Therefore you have saved $4000 - $2400 = $1600 in tax this year.

Lets say you then repurchased the shares from the $4k loss at the same price you sold them at to realise the $4k loss and the share price recovered to your original purchase price next year and you sold out.

You now have a $4k cap. gain which has a CGT liability of $4000 x 0.4 = $1600 which is the $1600 you saved last year. All you have done in this scenario is delayed paying $1600 of the original $4000 tax payable from the current year to the following year.

So the nett affect on the amount of tax you paid over the 2 years is zero.


I suppose then, that the benefit in tax loss selling in the above scenario is the return you would get from investing that saved $1600 elsewhere for 12 months.

just some food for thought

I have deliberately ignored brokerage costs for simplicity.

cheers

bullmarket

 

[Prospector]

That would normally be true Mr B, but on July 1 the tax rates change, so next FY the amount of tax that would have to be paid on gains will be lower, and the tax effect for losses will be less!

 

[bullmarket]

yes you are right Mrs P but I was just trying to highlight the general principle given the more normal circumstances when tax rates do not change from year to year.

cheers

bullmarket

 

[Prospector]

yes you are right Mrs P but I was just trying to highlight the general principle given the more normal circumstances when tax rates do not change from year to year.

cheers

bullmarket

: well, except for the last three years they have changed, so is that now normal? - I know all about it because any change mucks up my MYOB for salaries every payday as I didnt subscribe to MYOB to have the upgrades each year. And when is the next election - coz I'm betting there will be another change that year too!

It's also a much bigger change this year so this may well be impacting somewhat on the even bigger sell down this year.

 

[bullmarket]

I don't know if it's more normal now Mrs P but I think you can bet your bottom dollar that if Labor win the next election then tax rates will start creeping UP again slowly which would give you more incentive to not sell in June because the tax rates will most probably be higher on July 1

cheers

bullmarket

 

[Duckman#72]

You can sell at any time to realise capital gains/losses, it is just that June is the tidy up month for the current financial year.

Anything that is subject to capital gains tax is treated this way - there is a list on the ATO web I think

Ah Mr Bull we posted at the same time! The discount method is still allowed for assets held before, hmmm, 1998??? I will encounter that one this time with an investment property we sold. And yes, agree about the 50% deduction for assets held in personal name for 12 months+, 30% ALWAYS (ie no discount) for assets held in a Company name, and 15% for Assets in a Super Fund, unless you have reached the golden age of 55 and have already drawn down a pension in which case there is no capital gains.

And as usual, always contact your advisor for advice.

Hi Prospector

Coup[le of points. The tax rate on capital gains for superannuation funds is down to 10%.

Also the ATO have indictated that the old method of "crystalising losses" could be subject to Part IVA of the tax legislation. (That is the ATO could disallow the transaction on the grounds that it was done purely for the avoidance of tax).

I am talking about the case where a person bought 2000 AMP shares in 2002 for $13 and now wishes to sell them for $8 as there are other capital gains to offset. On the 23 June at 10:00am he sells all 2000 for $8, then at 10:45am he buys 2000 AMP shares back at $8. In that scenario the ATO has recieved legal advice that suggests Part IVA would apply to the transaction.

The advice would be to keep some distance between the sale and repurchase date and also to purchase a different parcel of shares. Even keep some evidence for buying back in (eg Sharebrokers advice column etc).

Seems tough but unless you can argue there was another reason for selling and buying the same number of shares on the same day for the same amount - other than for tax reasons - the ATO would be in the box seat.

Another thing to remeber is the ATO are increasingly using company registers and ASIC data to check audit activity regarding share transactions - with the increased number of people investing in the sharemarket whis will only be ramped up by the ATO.

Duckman

 

[carmo]

Could you not argue that you are just reducing your average price?

 

[Julia]

Thanks baglimit, they mention some dogs, a few may be the stars of tomorrow (or the week after!):

What are the candidates for selling? Looking across a few brokers there are some stand-outs which meet the criteria of poor performance and poor prospects, although there is division on the latter. Telstra (TLS) and Telecom NZ (TEL) are popular, and who'd buy into telcos anymore. McGuigan Simeon (MGW), Coca-Cola Amatil (CCL), Macquarie Infrastructure (MIG) Suncorp-Metway (SUN) and DCA Group (DVC) rate highly as contenders. There are a wealth of others that have provided negative returns for the year and as such become potential targets, despite current recommendations

SUN will be staying in my long term portfolio.

Julia