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"Wash" sales

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johannlo

johannlo

wintermute000
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Can anyone clarify what is the lovely ATO's position on 'wash sales' specifically for retail investors.


I read the ATO website here and its not clear on what they define as illegal

http://www.ato.gov.au/corporate/content.asp?doc=/content/00110544.htm

'“In certain circumstances we may determine that wash sale arrangements are schemes to reduce income tax,” Tax Commissioner Michael D’Ascenzo said.' OK so what exactly do they deem is a wash sale?

i.e. is there any law that forbids me to sell my losing shares in late June (resulting in capital loss which offsets cap gain) and then pick them up again in new financial year? WHat is the exact criteria that defines it as a wash sale vs a genuine changing of mind or mistake?

Also, maybe they only look into it for larger sums i.e. a few k here and there for a personal investor flies under the radar (like the, er, 'dodgy' expense claims that everyone's uncle, cousin and dog files)
 
johannlo said:
Can anyone clarify what is the lovely ATO's position on 'wash sales' specifically for retail investors.


I read the ATO website here and its not clear on what they define as illegal

http://www.ato.gov.au/corporate/content.asp?doc=/content/00110544.htm

'“In certain circumstances we may determine that wash sale arrangements are schemes to reduce income tax,” Tax Commissioner Michael D’Ascenzo said.' OK so what exactly do they deem is a wash sale?

i.e. is there any law that forbids me to sell my losing shares in late June (resulting in capital loss which offsets cap gain) and then pick them up again in new financial year? WHat is the exact criteria that defines it as a wash sale vs a genuine changing of mind or mistake?

Also, maybe they only look into it for larger sums i.e. a few k here and there for a personal investor flies under the radar (like the, er, 'dodgy' expense claims that everyone's uncle, cousin and dog files)
Click to expand...

They would generally look at the substance of the transaction. if there are other capital gains against which the losses from a wash sale are deducted. also for a wash sale to come to effect there has to be a 'scheme' element. like in the example given tax payer instructs the broker to place simultaneous buy and sell order on the same shares the taxpayer was holding, for the same quantity on the same day etc. it is obvious in those circumstances that
the taxpayer never intended to part with the shares in the first place.

i guess if you sell because you supposedly had a legit reason to sell eg. stock underperforming etc and later even if it is a day or so circumstances change eg company announcement etc and you decide to buy back they cannot argue that it has a scheme element and is a wash sale.
 
I think "in a nut shell" if u brought another stock in the same sector your ok...the same stock = suspect.
 
OK cheers.

Unfortunately all my capital losses are in companies that are biotech and/or research (AVX, INL etc.) oriented so very much waiting for the payday as long as the cashflow is coming in, 10-20% SP loss is nothing if you have confidence in the research fundamentals ;) Very much a dilemma for me....
 
The burden of proof lies with the ATO, they have to prove that you were intending to avoid paying tax, like Nikemi said they have to prove that there was a "scheme" involved.

If you have 5 parcels of shares and sold them on June 30, and then bought the same quantities of the same shares back on July 1, then that would suggest a strategy or "scheme" to avoid paying tax.

Traders buy and sell the same shares many times, but that is speculating for price movement, this is not the same thing.

In terms of what the ATO deems "reasonable" that is different in every case they look at, I think they intend to leave it vague, so they have more room for legal maneuvres. I believe it would have to be decided by the courts.
 
Has anyone ever heard of any circumstances where "wash sale" rules have been used against traders by the ato?
 
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