Paying Taxes on Capital Gains after Selling Shares on ASX

Dr-StrangeLove on 11/05/2020 - 17:06

Hi Ozbargainers,

I recently jumped on the share market wagon (~ a year now). Saw a few ups and downs when seeing where my portfolio was growing. I bought some shares when there was a dip in the market due to covid-19 and I have made some good gains on a particular share. Thinking about the swing the share had, I am now considering offloading it as it is not a good hold for the long term.

I am wondering what the tax implications on it might be and wondering if the nice folks here could help out. The share I am planning to sell has been held for less than a year now.

So bear with me in explaining my situation.

I bought the share for $5000 which is now valued at $8000. I now wish to sell part of it worth $5000 so that I can still keep the $3000 worth shares as it. I am not too optimistic about it but hey, what have I got to lose as I am getting back the amount I invested earlier. So now the question is, since my initial investment amount and the amount I get after selling some of the shares the same. do I still need to pay any capital gains tax for the $5000?

I am considering using the $5000 to invest in a different stock.

Thanks,
Dr-SL

Financial

Comments

  • Seraphin7 on 11/05/2020 - 17:14
    +21

    It's easier to think of it like this …

    You bought 5,000 shares for $1.00 each. They're now worth $1.60 each (or $8,000) in total. Therefore, to realise $5,000 you'll be selling 3,125 shares. You bought those shares for $3,125, therefore you'll need to pay tax on $1,875 of capital gains. As you've held for less than 12 months, you'll be paying tax on the $1,875 at your marginal tax rate (i.e. no 50% discount).

  • Avo on 11/05/2020 - 17:17
    +2

    Your CGT is determined based on the units of shares bought and sold

    So if you bought all $5,000 worth as a lump sum at the beginning, the cost base for the shares sold today will be 5/8 x $5000 = $3,125.

    You'll be profiting $1,875 ($5,000 - 3,125) of which you will pay income tax on either at full value or 50% depending on whether all shares were held for longer than 12 months.

    The remaining $3000 worth of remaining shares (at today's rates) will have a cost base of $1,875.

    EDIT: beaten to the punch

  • Donaldhump on 11/05/2020 - 17:27
    +2

    Depending on your tax rate you may as well hold it for 366 days.

    • dcep on 11/05/2020 - 20:10
      +5

      the capital gain on paper right now might turn into be capital loss 366 days later

      • Donaldhump on 11/05/2020 - 22:28

        yes but if it is a matter of days or months to reach the aniversary and not a full year away, i would hedge my bets. it would take a market drop of 30% for it to prove a bad move.

    • cloudy on 11/05/2020 - 20:50
      +5

      I’ll share a story for a friend of mine.

      He wanted to sell a share after a great gain but decided to wait 3 days until new financial year to avoid tax for a year.

      3 days later the shares fell 10%. So he decided to wait a bit to recoup some of that 10%.

      A few years later that share went to zero.

      Tale of the story, don’t do something for the sake of tax.

      • Donaldhump on 11/05/2020 - 22:29

        whats the advantage of waiting till the next tax year, unless you planned on not working, and is pretty stupid to do this as every person would be dumping this time of the year.

        and like any share they could have also gone up.

        • cloudy on 12/05/2020 - 08:29
          +1

          Government announced phases decrease in tax rates. Next year it’ll be less tax, plus a delay in paying 5k.

  • starspawn on 11/05/2020 - 19:37
    +1

    I would hold on to them for over a year, you will most likely be better off doing it that way.

  • HeWhoKnows on 12/05/2020 - 08:34

    If you buy and sell within 12 months as it seems you plan to do then the profit is added to your income for the year and you pay the marginal rate of tax.

    Capital gains only apply to assets held for more than 12 months

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