Hi guys, got a question for the smart.
My brother recently lost his job at the company he works for. To make things worth he also lost about $48000 last year dealing crypto called Ripple. And to make things even worth his investment house he purchased 6 years ago is now selling about $150k less than the price he paid.
If he were to selling the investment now would he able to carry forward the loss on both failed investments? If so how many years can he carry forward for?
Thanks many
But not in income?
geesus.. of course not.
You'd think that, but there are cases where losses that you might think were capital can be offset against income - https://www.ato.gov.au/business/non-commercial-losses/four-t…
That said, none seem to apply to ripple here, but the investment unit may pass the "real property test" depending on value and so be relevant. I'm no accountant though, I'd recommend he gets professional advice.
I'd probably advise that he stops investing period. He might lose the damn lot…
He has sold all his ripples, still trying to decide if he wants to get rid of the unit as it’s currently tenants in it.
By the way he also said he will never touch ripple again. I think he should have not touched Ripple or any other crypto at all.
If its me, I wouldn't sell after down 90%. I will just hold it and forget it for 10 years.
Who knows, it may turn out to be good after 10 years.
But I can see both side of the argument.
@house2015: Selling his XRP was a silly decision.
For him to have invested that much he should have had half an idea of what the market was doing, its clearly correcting and is being compounded by a bunch of first time investors panic selling.
You only make a loss when you sell for unders.
Should've held on.
@house2015: I'd sell to realise the capital loss, then buy back again. The loss is 100% deductible, then if he holds for a year he'd get the 50% capital gains discount on any gains. It's a stupid system, but it's the one we have, might as well use it.
I say that "I'd sell", but I wouldn't have touched any crypto "investments" with a ten foot pole in the first place.
@josho9: Yes, that's what I meant, but obviously I should have clarified. It's 100% deductible against future capital gains, while those future capital gains will have a 50% discount.
@ely: Okay, but you can't sell them and buy them back straight away for the purpose of crystallising that loss and then getting a 50% discount 12 months later - that tax benefit will be cancelled as a tax avoidance scheme and the sale and buy back disregarded. See ato website
@josho9: Intent is hard to prove; you'd be looking to cut your losses and buy back in at a lower price. At least officially.
@ely: The ATO doesn't need to prove intent - they can just cancel the tax benefit and amend your tax bill. You have to prove that your intention was to buy back in at a lower price.
@josho9: That does sound like the heavy handed crap that people complain about, but it seems unlikely to hold up.
"I sold to cut losses and then bought back expecting it to rise again" is both a sound thing to do and perfectly acceptable tax wise.
You can use it to offset capital gains in the future, with no time limit.
You can't offset income unfortunately.
So if he makes a profit on some future investment, e.g. shares or property, he won't have to pay tax on the profits he made, as long as the profit is equal to or lesser than the declared capital losses accumulated.
Then you'd be breaking even.
But I get a feeling he'll be shy about investing in the future, so he may not recover those losses.
No more XRP for sure.
Pretty sure he won’t be buying any investment IP soon.
So what does that leaves him? Not much really.
Really you have to note the losses? Surely you can show them your losses and they can see that not offsets have been claimed?
I had an ordinary accountant and have switched and losses were never noted!
there should be a carry forward capital losses line on every single return.
Thanks NeoWilson. Will get the accountant to look at it.
Before people say I should be reading what I sign off, you are correct but oversights happens and I focus on income and expenses. I am 100% certain these things can be correct with the ATO.
Leverage can be a harsh mistress.
You should meet Helen.
House indefinitely and I would want to seek a professional opinion as to how a capital loss on the crypto is to be treated.
Since the update below shows more than $60k crypto losses, I am inclined to agree that it is worth getting some pro advice.
I guess the upside is there will be plenty of other people doing the same.
Thanks.
Lost $150k on a house? ouch… Apartment or free standing house?
Unit. The unit price in Perth is now back to the 2009 level.
In fact Perth has not had any growth in house prices for the past 6 years
hmmm i really want to smack those property agencies that promoting apartments in perth as "best affordable investments" 3 years ago
They are still pitching the same thing now. I can say with a certainty that prices of housesin Perth are not going up any time soon. 5 years at least as there are just too many people has no jobs and my brother is totally stressed out st the moment
Don't ever listen to those property agencies. They only want to serve their own beneficial interests.
They had been saying that Perth property had bottomed out over the last 2 years but it's still falling. We had friends buying into the Perth house market 2 years ago and they got caught with their pants down. Down like 5% each year so that's 10% loss in 2 years not including interest and stamp duty.
i really want to smack those property agencies that promoting apartments in perth as "best affordable investments"
From what I understand, they offer "guaranteed rental income" for a set period, however ACTUALLY SUBSIDIZE RENTAL INCOME, for that ammount of years. I'm not sure it is illegal, but certainly is misleading to the average punter
@house2015: $30 Billion dollars of projects in resources industry kicking off next year, which will roll on for about 3 years, unless more get announced in that 3 year period. The amount of skilled labour in our current market would suggest all the eastern staters that packed up 5 years ago will be coming back which may translate to a small uptick.
@DarkOz: Family home or Unit? Unit has been hit the hardest.
Especially in the East Perth Areas.
Total carnage.
@house2015: Both houses North of Perth as investment properties. I supposed they were “lucky” they weren’t apartments as they were definitely hardest hit.
How is Perth now? We were contemplating of moving over from Sydney due to the affortable housing but so worried about employment! Mainly in the aged care industry.
@DarkOz: I would suggest you come here and have a look first.
I wont give you any advice as big as this. But I do ask yourself to come and have a look to see if you can live in Perth at the current stage. As employment will be a big problem for you.
Welcome to regional Australia!
@JB1
Actually it’s paper lose at the moment with the investment unit. He has not sold it yet. But he did get rip all of his Ripple holdings
Unless it's likely to go up soon, may be better to get rid of it.
why ? unit is not meant for gaming on capital gains, they are for rental income which he currently has tenants in it
@house2015: Didn't see it mentioned elsewhere (could've missed it) but is the unit positively geared?
@house2015: Oh, then he's only losing money by holding onto it. No idea about the Perth property market, but if there's no upswing on the horizon, it's basically gambling - while losing money - to hold onto it.
Ah the "Paper Loss" clown is here, was wondering how many comments I needed to read.
The loss is there, but it has not been monetized yet. It's a real loss.
Good to see someone call a spade a spade. A loss is a bloody loss. Why sugar coat it, well I know why…
@tessel: They aren't acting like paper losses don't turn into "real" losses and everything is fine so I have no idea what your issue is?
It's certainly possible that in the long term the unit could go back to being worth what they paid for it, in which case making a distinction between paper and real losses is perfectly rational.
My understanding is he can carry the losses forward as long as he needs until they are fully utilised. Keep in mind you cannot offset these capital losses against future income from employment - they can only be offset against capital gains. So they will only be useful to him when he eventually makes some money on crypto or buys and sells some other asset at a profit.
From the ATO website:
"You can't deduct a net capital loss directly from your income, but you can carry it forward and deduct it from capital gains in later income years."
"There is no time limit on how long you can carry forward a net capital loss."
https://www.ato.gov.au/General/Capital-gains-tax/Working-out…
Just asked him with Ripple, he told me he did 132 trades for the last year. The total lose was higher than I said earlier. Total lose in fact not including fees are at $67322
Can any of his loses on the Ripple be offset again the income? Can he be classified as a day trader if he did that many trades in a calendar year?
No and no.
No he cannot.
Seriously, you can use Google to find the answers to these questions very easily. Again, from the ATO:
“Not all people acquiring and disposing of cryptocurrency will be carrying on businesses. To be carrying on business, you will usually:
Given these criteria it is very unlikely he can legally deduct his losses against his employment income. You and I both know he was just a guy gambling hoping to make some easy money. He was a fool to lose so much given how volatile crypto is.
All the trouble started when the work started going dry. He is not a gambling man but I know some people in his work force has left due to the run of December last year and made a killing and he soon followed. I guess you can call it gambling. But I did warn him about investing as I think shares are better but when someone is desperate and with some others keep saying how easy it is to make money that way his better judgment got better of him
actually this is bad advice. 132 trades in 1 year is a lot and goes towards showing he was trying to make money from buying and selling (income) as opposed to holding the crypto for a long period for long term gain (capital).
whether he was trading in crypto (therefore revenue losses to offset against his income) or capital investor depends on the facts and circumstances.
i highly recommend going to a good tax agent for advice.
@CheapskateQueen: Ok I will ask him to seek professional help.
As far as I know, his original plan was to get in, make tons of money, get out. Then something changed, prices of Ripple just keep falling and he keeps buying and selling in order to short the market to make the money back.
However the market never recovered which in total made the lost, he showed me a spread sheet and you be totally shocked how much he is losing by trying to short the market.
I still dont know why would anybody trade crypto as i cant see any upside to it.
Speak to a good accountant.
His number of trades in crypto could help him be deemed as a trader.
Definitely look into it
@house2015: You do realise If he was shorting while the price was going down, he would have made money?
I still dont know why would anybody trade crypto as i cant see any upside to it.
The trick is that if your brother lost $70k someone made $70k, money doesn't disappear when you invest, its just passed around. He bought those shares from someone, who likely made money, and sold them to someone, who thinks they can sell for higher.
The problem with most good or bad tax agents and accountants are if you pay them enough they will tell you what you want.
And in the end of the day the ato has the tax payer on the hook.
When it comes to something (even slightly) subjective such as crypto trading, which is fairly new, for every guy who loses and wants a write off it’s trading. For every man who makes money it’s capital and wants the capital discount or ability to offset other losses.
@futureminime: That's not how it works, the value can do up and down, just cause one person lost 70k doesn't mean another person made 70k.
There are a lot of crypto documentaries on netflix, give them a watch, very interesting, especially the bitcoins ones, the grandfather of crypto.
I'm normally reasonably good at the logic in these sort of things. I'll have a look at the documenaries, always happy to be proven wrong and learn something new. If you or anyone else can correct me it would be great, or I'll pick up my own error when I get to the docos.
I'm not suggesting that one person necessarily made $70k, but the fact that the brother cashed out down $70,000 means that the some of previous owners should equal $70,000. My understanding is (was) that when you make a sale and actualise the market values for purchase and sale allow you to make statements like I did.
Miner generates 14000 OzBargainos at a cost of $0 (for ease of calculation), sells them to Buyer A for $7,000 ($0.5 each), Buyer A sells to Buyer B for $140,000 ($10 each), making $140,000 - $7,000 = $133,000. Buyer B sells them to Buyer C at $70,000 ($5 each), a loss of making $140,000 - $70,000 = $70,000.
At the end of the day:
Miner: +$7,000
Buyer A: +$133,000
Buyer B: -$70,000
Buyer C: - $70,000 + 14,000 OzBargaino's
Sure the market goes up and down, but currently the only person involved in the market is Buyer C, the other values are fixed upon sales. You could say our mate Brother Buyer B has made Miner $7k and Buyer A $63k or made Buyer A $70k. The distribution doesn't matter just the sum of actualised values.
Your theory only happens when there is no demand.
What happens if supply and demand is only going up.
For example, gold, there is only so much of it we can mine on earth, just like crypto.
Your buyer C might be at -$70,000 at the moment but those 14,000 OzBs value is changing depending on supply and demand.
And once miners can't mine anymore, what happens to its value then?
It's only because the buyers are treating it like the stock market I guess.
@jerjergege: I'm no market expert but I don't understand that logic at all.
For the sum of the inputs to be higher than the sum of the outputs, money would need to be stored somewhere and not owned by anyone (or destroyed). Where would this happen for either gold or crypto currency?
You're right with Buyer C not having 'lost' $70k. I was talking about buyer B, who is like the brother who has already sold off and is down $70k. He, as discussed, lost this money, not in a hypothetical theory but in real life. I was just trying to illustrate it has to go somewhere, and thats to people further back in the chain.
Even then you could argue Buyer C has lost $70k, but in this instance (unlike Buyer B) we don't have enough information to say its a bad thing. Like you said it could even be a good thing. That's because he has also gained 14,000 OzB's. Don't take this the wrong way, its the same thing that happens when you do anything. If you buy a burger you lose $$ and gain a burger.
I think you're getting caught on the fact that things have an intrinsic convertible value. 1oz gold is worth 1oz of gold. 1AUD is only worth 1AUD. At the moment you can buy 0.73 USD for 1 AUD because, like you said with crypto, supply and demand dictate how we exchange products/currencies. But that value is just an indicator of the last lot of exchanges/trading, its not actually worth that much, its worth however much people are willing to sell+buy it for.
All I was ever saying is that you can ignore all other forms of value. @callum9999 has the right idea, that you can just look at the AUD portion of the transaction because that has to balance out, it's not going anywhere, it's just being moved around.
He is only 15 years from retirement so if he has no further capital gains event in his life time. Does the capital lose just goes wasted?
either you use it or lose it
Correct. He gambled and he lost. Use it or lose it. There is no reason why the Australian public should give him a break on his tax bill going forward because the gamble didn’t go his way.
But they should benefit if it did go his way?
Yes, if it went up instead of down the Australia Public will be benefit
@house2015: Yes he would pay capital gains, I’m just posing the question why it works one way but not the other
@Mrgreenz: it does go the other way - he gets a break on future capital gains to the extent of his carried forward losses. This means he has the opportunity to pay less taxes in the future.
If it werent for the Australian public he wouldnt have the means to have a crack at it to begin with.
Yea I know, but if he never makes a capital gain than he never gets that tax break. He’s still lost money that he risked, I just find it a bit of a double standard.
I guess thats just the way the cookie crumbles if you cant write off across income streams.
Thanks to the capital gains discount, barely.
He is only 15 years from retirement
And he sunk $67k into crypto?
Total investment was $90k by memory.
But you can see if you look at the Ripples price it’s a down hill.
I did ask him why not buy bitcoin but he says someone said Ripple is solving some transactions problems or something and going to be the next big thing. I never believe a company doing transactions will be big so I did say buy Telstra shares instead…..
I did ask him why not buy bitcoin
That's not the correct question…
I did say buy Telstra shares instead…..
Much better.
If he is only 15 years from retirement then this is one of the most high risk plays you can make at that stage of your life.
The closer you are to retirement, the less risk you should be taking on. Can't fathom why someone would not get professional advice before dropping that sort of money on gambling/investments.
The investment house was done in order to offset his income. I believe he did consult a number of people so he didn’t take the decision lightly.
On the Crypto thing I honestly don’t know anything about it but I didn’t think Crypto is gambling? I thought it’s like buying shares
Or is Crypto classier as gambling now? If so there should be no captital gains ifs it’s classed as gambling
Such volatility, a product that is not backed by any gold/nation, there isn't very much difference between crypto and the roulette wheel.
@Deridas: I wouldn't go that far, at least not for PoW coins, the replacement cost gives them some level of value.
It isn't gambling, but it's one of the riskiest investments, for every millionaire there are chumps, me included, who are down a few grand from trying to ride the rainbow.
It is absolutely ridiculous that people make investment decisions for the sole purpose of offsetting tax.
@house2015: To put it simply there are two ways that cryptocurrencies form a consensus, Proof of Stake and Proof of Work.
Proof of work is traditional mining (Bitcoin, Etherium, Litecoin, etc), you run expensive hardware to get more of a specific coin, and because neither the hardware nor the electricity to run it is free, each coin has a cost associated with its generation. If the price of the currency goes below the cost of electricity, then miners either stop mining as they're making a loss, or they mine something else, driving the cost up due to the lack of new supply. This equilibrium keeps those currencies from reaching $0, unless faith is 100% lost.
I would consider anything that is high risk and with wild unpredictable swings as akin to gambling.
Most of the crypto is literally copied software (technical term: forked repository) that does nothing new at all. There is no need to do something new. Bitcoin and Ethereum are the only 2 crypto technologies that seem to invest in real R&D. That's why their value is high and supposed to be worth investing.
I studied crypto for a while just to understand what the hell is everyone on about (I'm a software engineer) and I did not invest a single cent. Instead, I had thought of starting my own coin but the marketing requires a lot of time and money. Most fake crypto is marketing done well.
Yeah, and playing roulette isn't gambling, it's buying a number like buying shares.
Its not too far off a ponzi scheme, more accurately its irrational exuberance. The reason people were buying into it is because other people were then buying into it and paying more for it, there was no logical reason for the price to rise heaps in the first place, it was just an irrational bubble.
It had much lower real / intrinsic value or prospect of earnings / return.
Buying shares in something that generates income (as well as capital gain) is good investing, buying something because the capital price keeps going up in a frenzy is an irrational exubrance / bubble waiting to pop.
Thanks guys for the input.
So to sum it up:
As long as it’s captain gains it can only offset against capital gains. Can the loses in the housing investments lose offset against future share/crypto gains?
Yes. They are all capital in nature.
The golden rule here is that you can't offset income with capital.
If they are all capital in nature then the offset is applicable. Remember to keep records.
Thanks for that. I will notify him this news. I highly doubt he will have another capital gain event in his life. But never say never
Ouch!
I hope your brother is doing ok.
You can carry forward capital losses until they can be offset by capital gains.
Your brother should have a read of Barefoot Investors book so he can get things back on track
Leverage can be a harsh mistress.
You can offset capital losses against future capital gains with no time limit. Just make sure he notes them in his tax return.