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Pesky carry-forward capital losses

Discussion in 'Accounting, Tax & Legal' started by Waimate01, 23rd May, 2017.

  1. Waimate01

    Waimate01 Well-Known Member

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    I have a six-figure carry forward capital loss which is starting to annoy.

    It's a personal capital loss. Most of our wealth is stored in other vehicles, and my modest personal investments do not have sufficient unrealised capital gain to cover the carry-forward losses.

    The carry forward losses seem like a waste - as inflation grows, their face value remains numerically static while their actual value slowly erodes.

    Is there anything useful one can do with carry-forward capital losses?

    Thanks for any thoughts !
     
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  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    You could "manufacture" capital gains by buying share or fund investments just after a dividend or distribution and then selling just before the next dividend/distribution.

    With a managed fund, the unit price will drop by the value of the distribution when it is paid, so you can use this to maximise your capital gain amount.

    Of course, this assumes the market doesn't drop during the period you hold them.

    You'd want to double check your timings for things to make sure you are making the buy or sell orders at the correct time.
     
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  3. twisted strategies

    twisted strategies Well-Known Member

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    thank you Simon ,

    memo to self , enter this into my little book in case I ever need it .

    I am sure I can apply a variation if needed .

    cheers !
     
  4. Waimate01

    Waimate01 Well-Known Member

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    That's a good suggestion Simon, and I thank you for it.

    If I'm understanding correctly, I would buy something like IHD which pays quarterly dividends, and for example buy $100,000 worth just after they go Ex, and sell 89 days later just before they go Ex for $101,200 (assuming yield of 4.8% and a rational market). That'd give me a gain of $1,200 four times per year -- assuming the market treads a smooth upward line with few wiggles.

    If I'm understanding correctly, that means quarterly transactions for the next 20 years to clear my $100k accumulated losses? Or I start doing million dollar in-out punts and do it in just two years? Yikes!
     
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  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Perhaps something with a higher yield - doesn't matter if it's got a high capital component to the distributions, so high churn funds are okay. I know the NavraInvest funds used to have very high yields some quarters due to the trading nature of the funds - they would have been ideal for this type of operation because the post-distribution unit price drops were often pretty large.

    Anyway - it's just one way you can manufacture capital gains.

    The other way is to invest $100K and hope that you can double your money.

    Are your other investment vehicles trusts by any chance? Because capital gains are taxable in the hands of the beneficiaries - that's kind of ideal (assuming discretionary), since you can stream capital gains to yourself and avoid paying tax on the first $100K of them.

    I have the opposite problem - large capital loss carried forward in a discretionary trust (a lot more than $100K :eek: ), need to generate significant capital gains within the trust to soak up those losses.
     
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  6. twisted strategies

    twisted strategies Well-Known Member

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    Waimate01 ,

    would you buy and sell each div . cycle or would you pick something VERY LIKELY to gain ( in SP ) over say the next 2 years and then sell at a comfortable peak ??

    personally I had CMW in mind ( pays 3 monthly and DRPs ) and it is yielding 8% pa ( if bought under $1 ) it pays no franking but is liquid enough to sell at say $1.05 .... wait for 95c and rinse and repeat ( accumulating the DRP shares )

    say buy-in @ 95c sell at $1.05 ( using a price trigger rather than a calendar date )

    AAA ( a debt based ETF pays monthly , cash only ) but SHOULD rise as interests rise ,

    say IF you foresee interest rates rising in the next 2 years .

    Simon has suggested a nice idea , but making it work for you ( personally ) will be the challenge
     
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  7. Waimate01

    Waimate01 Well-Known Member

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    No, a family investment company. And annoyingly I have unrealised gains in there.

    It's a pity you can't sell tax losses to someone about to realise a gain. I suppose the two parties could arrange the sale of an asset at an artificial price such that one party gains and the other loses, with appropriate handling fees levied along the way. There could even be a business opportunity to set up a "tax loss trading exchange". Come visit me in prison !
     
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  8. Terryw

    Terryw Well-Known Member

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    Start investing in a discretionary trust going forward. Later the trust could distribute capital gains to yourself.
     
  9. Lucky Lad

    Lucky Lad Member

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    Beware of Brokerage Costs associated with high turnovers of trading. It could easily kill your intended tax benefit.