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Buying and Selling Shares, and CGT

Discussion in 'Shares' started by kizz, 10th Apr, 2010.

  1. kizz

    kizz Member

    10th Mar, 2010
    Hi everyone,

    Wanted to happily say I've entered the world of trading Shares! :D

    I have a couple of questions regarding Capital Gains Tax, as I'm not entirely sure how It all works.

    Q1. I'm reading about CGT on the ATO website, but I'm not entirely sure how CTG would work if you buy a share at say $2, then when it drops to say $1.80 you sell, and then buy again when the share drops again to say $1.70, and then sell it once it reaches $2+, so you continue the process, buying low, selling high. Could someone please explain how that works?

    Q2. I'm in the $35,001 – $80,000 tax bracket ($4,350 plus 30c for each $1 over $35,000) so, if I make $2,000 in a year in Capital on my shares, my Capital Gains Tax would be: $0.30 x $2,000 = $600 (unless the amount I earned pushed me over the $80k mark, which I would then pay CGT at the next tax bracket?).

    So, will I pay an extra $600 in tax just for making this small gain regardless of keeping or selling the shares, or, it's only when you sell?

    Thanks in advance.
  2. jabba_jones

    jabba_jones Well-Known Member

    2nd Dec, 2007
    Quick example:

    Buy $2, Sell $1.80 = Loss $0.20

    Buy $1.7, Sell $2.20 = Gain $0.50

    Assume 100 units for both purchases

    Loss of $20, Gain of $50

    You can offset the loss of $20 to make a net gain of $30, so tax will be payable on this. Note this assumes no discounting.

    You only pay tax when you sell and have made an overall profit (i.e. no carried forward losses or other losses generated that year to offset the tax liability from gains.
  3. Vagon

    Vagon Well-Known Member

    31st Mar, 2010
    Also how often you trade you trade will affect your tax and if you trade enough you will incur income tax instead of CGT. I don't believe there is a set definition but the ATO gives guidelines here.

    It also seems timely to mention the 45 day rule which requires you to hold shares for 45 days in order to receive franking credits. Here is an investEd pot on the subject.