Tax on shares

[gregcourageous]

Hello All.

Quick Question, how does tax on shares work. I'm a student, earning around 20k a year. hardly anything. I've got a little bit of coin saved up so I'm buying and selling when i can, Is it true that every trade i make a profit on i have to pay 50% tax regardless of what my total income is? but if i hold for over a year it's only 25%??? If that is the case do losses cancel out the profits?

 

[JMcDog]

The capital gain(s) that you make on your share transactions become assessable income and should be included in your tax return. i.e. There is no fixed tax rate as such. For example, if you earn $5,000 (as a student working part-time) AND make net capital gains on shares of $5,000, then your assessable income is $10,000 - providing shares have been held for less than 12 months. If you have made a capital gain of $5,000 on shares held for more than 12 months, then you only need to report/include $2,500 of the capital gain as assessable income. Capital losses may be offset against capital gains, however, be careful when applying the 50% discount for gains made on shares held for more than 12 months.... you must apply the 50%discount to the losses that are offset against your gains in this situation.
Essentially your tax rate is simply your marginal tax rate - which as a student will generally be relatively low. Certainly not 50%.
Don't forget to include dividend income also... if these are fully franked you will find that this income works out to be tax free (or even better than tax free!) when applied against student marginal tax rates. i.e. The company has already paid tax at 30% which may be higher than your rate anyway! Hope this helps...

 

[gregcourageous]

Thanks for your help! I kind of figured it would all just work into the one combined total income at the end of the financial year.

Cheers.

 

[Glenhaven]

However if you are considered a trader there is no capital gains relief.

 

[harriss2]

However if you are considered a trader there is no capital gains relief.

How does the tax offfice determine whether you are a trader? Is there a prerequisite? Have been curious, but don't know (apart from phoning) how this works.

 

[son of baglimit]

you decide for yourself, believe it or not.

read "am i in business'' on ato.gov.au

 

[Pommiegranite]

Hello All.

Quick Question, how does tax on shares work. I'm a student, earning around 20k a year. hardly anything. I've got a little bit of coin saved up so I'm buying and selling when i can, Is it true that every trade i make a profit on i have to pay 50% tax regardless of what my total income is? but if i hold for over a year it's only 25%??? If that is the case do losses cancel out the profits?

I use the following methodology (I'm not a a day trader but to tinker with my portfolio from time to time):

Capital Gains stock held < 1 year = 30%
Capital Gains stock held > 1 year = 15%

 

[nomore4s]

Quick question.

If I puchase 10,000 shares at $1, the price doubles to $2 and I sell 5000 of the shares. Is there captial gains payable on the sale of the 5000 shares ie profit of $5000.00 or is it not considered a capital gain
a) because I've only got my original $10,000 dollars back
b)till I sell the other 5000 at say $3 a share so I pay tax on the $15000 profit of the sale of all the shares. ie Sold all 10,000 shares for a total of $25,000, $15,000 profit.

Thanks in advance for any info and answers regarding this matter.

 

[sleeper88]

Quick question.

If I puchase 10,000 shares at $1, the price doubles to $2 and I sell 5000 of the shares. Is there captial gains payable on the sale of the 5000 shares ie profit of $5000.00 or is it not considered a capital gain
a) because I've only got my original $10,000 dollars back
b)till I sell the other 5000 at say $3 a share so I pay tax on the $15000 profit of the sale of all the shares. ie Sold all 10,000 shares for a total of $25,000, $15,000 profit.

Thanks in advance for any info and answers regarding this matter.

If you sell 5000 shares at $2, ur capital gain is $5000, herefore you pay tax on this amount (at your marginal tax rate, say 30% for example) so $1500 tax (assuming you sold it before 1 yr)

When you sell the remaining 5000 shares at $3, your capital gain is $10000, 15% (assuming you held it for over 1 yr) then $1500 tax

total tax bill = $3000

If you didn't hold the remaining parcle for 1yr then you pay $3000, therefore total tax bill is $4500
If you hold both for 1yr, then you tax bill is $750 + $1500 = $2250

 

[Baka_Gaijin]

"you decide for yourself, believe it or not.

read "am i in business'' on ato.gov.au"

Sort of, it is a self assessment system, but you haveto follow their rules. If you get it wrong they will penalise you. Basic rule for trading is as for any hobby verse business. But as per son of baglimit's post the ATO website has the criteria.

 

[Baka_Gaijin]

Guys, please be careful of oversimplifying a rather complicate tax system. Terms like "total tax bill" can be misleading as there are many factors depending on an individuals circumstances which you may be overlooking like loss of rebates, medicare levy, crossing threshholds. Aside from the tax issues, also be aware that you may have flow through effects if you are receiving any government payments etc.

 

[goldnugget]

Tax and shares

hi guys,

i've read a fair bit on cgt and although i think i get most of the gist of it, it'd be nice to get some clarification from you "old hands".

mainly i would like to know whether the income i earn from shares is lopped in with all other income such as job income and whatever else and you are taxed according to what income threshold you belong to? so if i'm a full-time student and not earning any money from other sources apart from shares which earn lower than the minimum taxable income of $18,200, does that mean i don't pay any tax on the profit from shares?


thanks peeps

 

[ROE]

Re: Tax and shares

hi guys,

i've read a fair bit on cgt and although i think i get most of the gist of it, it'd be nice to get some clarification from you "old hands".

mainly i would like to know whether the income i earn from shares is lopped in with all other income such as job income and whatever else and you are taxed according to what income threshold you belong to? so if i'm a full-time student and not earning any money from other sources apart from shares which earn lower than the minimum taxable income of $18,200, does that mean i don't pay any tax on the profit from shares?


thanks peeps

Dividend will get lopped in with your income
Profit from shares treat as CG
So if you on 20k a year and pay little tax
You buy share a for 1 and sold for 1.10
You tax on 10c profit based on your 18k tax rate which is equate to nil

And if u hold for more than 12 months
U get CGT concession of 50% so u pay tax on 5c
If you have to pay CGT

 

[pixel]

Re: Tax and shares

hi guys,

i've read a fair bit on cgt and although i think i get most of the gist of it, it'd be nice to get some clarification from you "old hands".

mainly i would like to know whether the income i earn from shares is lopped in with all other income such as job income and whatever else and you are taxed according to what income threshold you belong to? so if i'm a full-time student and not earning any money from other sources apart from shares which earn lower than the minimum taxable income of $18,200, does that mean i don't pay any tax on the profit from shares?


thanks peeps

Correct.
... and it gets even better:
If your dividend comes with Franking Credits, the grossed-up amount is added to your taxable income.
Say you had 5,000 TLS shares, which you didn't touch (so, no CGT). Telstra would've paid you $1,400 dividend, which is grossed up (divided by 0.7) to $2,000. Then your taxable income increases by $2,000, of which $600 tax has already been paid as part of Telstra's Company Tax. Those $600 will be subtracted from your total tax bill, which can result in a tax credit.
If your total taxable income remains below the threshold, the Taxman will refund you those $600 as well.

 

[drsmith]

Re: Tax and shares

The ATO document "You and Your Shares" is what I would regard as essential reading for any shareholder. It describes in detail the tax issues around share ownership including imputation credits and includes detailed examples.

http://www.ato.gov.au/content/00313594.htm

As noted above, imptutation credits are very valuable, but complexities like the 45-day holding rule also need to be understood.

With CGT, the main things to remember is that it aplies to the capital gain on assests sold, that capital gain is halved for assetes that are held longer than 12 months prior to being sold and that the rate of tax is your marginal income tax rate.

Again, the ATO has a wealth of information.

http://www.ato.gov.au/corporate/pathway.aspx?pc=001/001/038

Properly understanding tax requires a lot of reading, even for realtively simple financial situations. It's an unfortunate consequence of our complex tax system.