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How long I need to wait before repurchase for Tax reason

Discussion in 'Shares' started by tropic, 22nd Jan, 2008.

  1. tropic

    tropic Well-Known Member

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    I have some capital gain from Alinta and Multiplex this financial year.
    Some of my stocks are down (a lot) and it seems to be a good time to sell some that carry loses to reduce the CG tax.
    But I was informed that I can't buy them back straight away. I think it has to something like 30 days later???
    Can anyone explain the process please. Thanks.
     
  2. Rod_WA

    Rod_WA Well-Known Member

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    Are you saying that you wish to "lock in some losses"? :confused:

    Sure, sell your crap shares that are going to take a long time to recover, but maybe now's not the right time to be selling good shares just to buy them back?

    One other piddly thing to consider: buying back the shares at a lower price will create a new, lower cost base for the shares, meaning that you'll have to pay more CGT on them in the future.
     
  3. tropic

    tropic Well-Known Member

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    Maybe I should use an example.
    Say I have a realised 10K CG and I own a stock AAA that has paper lost of 8K. If I sell AAA with -8K CG I only have 2K CG left.
    But you can't repurchase AAA back on the same day into your portfolio.
    ATO will see it as deliberate way to decrease CG and will consider the sell of the AAA shares with -8K CG as never take place.
    However it's okay if you buy the shares back much latter, I am not sure if its a month? Maybe this regulation has changed???
    This is what I am trying to find out.
     
  4. AsxBroker

    AsxBroker Well-Known Member

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    Hi Tropic,

    I haven't heard of this, when I was working at JBWere we were allowed to wash stock through, basically a buy and a sell on the same day, it just cost us a little brokerage which we got back from the company anyway.

    Cheers,

    Dan

    PS Speak to your tax accountant before making a taxing decision.
     
  5. GavinC

    GavinC Active Member

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    TR 2008/1 is the applicable ruling (only 1 week old, talk about timing!). The ruling doesn't prescribe a period of time (or at least I didn't see one in my cursory reading of it).

    In any case it involves Part IVA, so chances the ATO will pick up on your wash sale in particular are remote. Also there would be nothing stopping you buying some other shares, rather than the ones you currently own, if you want to put the issue beyond doubt (this is specifically allowed in the ruling).
     
  6. Rob G.

    Rob G. Well-Known Member

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    TR 2008/1

    Wash Sale = sale & repurchase within a short time to gain a tax advantage without any economic change in the asset.

    A deduction today might be worth the extra CGT liability (through lower cost base) far in the furure.

    Don't forget losses must be set-off BEFORE any discount, assuming the Commissioner allows it in the first place.

    There is no definition of "short time". In volatile periods, economic value can change in a very short time - like 5% in a day !! So it may be reasonable to do rapid trading then.

    Note, to qualify for franking credits the Act deems 45 days at risk to be sufficient.

    THIS IS NOT TAX ADVICE !!! You have stated a purpose that might put the Commissioner on notice and all facts would need to be considered by your advisor.

    Cheers,

    Rob
     
  7. Rob G.

    Rob G. Well-Known Member

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    Probably a couple of examples of what seems OK with short periods:

    1) Investor selling & buying in a short period based on real or expected price movements

    2) No price movement, but investor margin called however they subsequently refinance and buy back the same securities

    Cheers,

    Rob
     
  8. tropic

    tropic Well-Known Member

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    Thank you gentlemen.
    That's a good enough explanation for me to start selling and buying back.

    Another question related to CG tax, just in case it has changed in the last few years.

    Can a CG from shares that are held for more than 12 months be offset by -CG by shares held for less than 12 months (say 3 months).
    I remembered my accountant told me once that we have a different tax calculation for assets held for more than 12 months.
    Over 12 months is CG and less than 12 months is income.
    This confuse me.
     
  9. Rob G.

    Rob G. Well-Known Member

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    Cheers,

    Rob
     
  10. tropic

    tropic Well-Known Member

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    Rob,

    thank you for the answer.
    That certainly makes my book keeping easier.
    I have quite a bit of -CG at the moment:mad:.
     
  11. tropic

    tropic Well-Known Member

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    I am still a big confuse with the discount.
    If I have a CG from shares that I kept for more than 12 months I get a tax discount but if I keep it less than 12 months I don't get the discount. Is this correct?

    Is it then better for me to have the CG deducted with a -CG from shares that I hold for less than 12 months? So the discount apply on the +CG but doesn't apply on the -CG?

    Can someone please explain. Thanks.
     
  12. Rob G.

    Rob G. Well-Known Member

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    You don't discount a loss, but it is set off against any capital gain BEFORE any discount is applied.

    If you have a number of different realised gains to choose from for applying losses, you would normally prioritise as follows:

    1. Non-concession capital gains
    2. Index capital gains
    3. Discount capital gains

    However, if you only have an unrealised gain then don't bring it forward to less than 12 months to get the full benefit of the loss !!!!

    e.g. Loss carried = $50

    Dispose of shares owned for 11 months:

    Proceeds $300
    Cost base $200
    CG $100
    Less CL ($50)
    Net Capital Gain $50

    Alternatively wait & dispose of those shares after 12 months

    Proceeds $300
    Cost base $200
    Gain $100
    Less CL ($50)
    CG $50
    Less 50%
    Discount CG $25

    So don't be greedy timing maximising your loss value, the discount is still valuable. (Assuming there is no other reason to realise the gain sooner such as risk of adverse price movements or a large interest payment).

    Cheers,

    Rob
     
  13. tropic

    tropic Well-Known Member

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    Hi Rob,

    Thank you again for the explanation.
    I am not trying to bring forward the CG but rather trying to sell stocks that have -CG so I don't have to pay text this financial year.
    I bought the shares with -CG less than 12 months ago.