Sold Some Shares, Then Reinvest, Declare Tax??

lazax on 13/09/2022 - 00:26

It's tax time, so I thought I may ask the wisdom of tax savvy Ozbargainers. I came across this problem when doing my tax return this year.
I sold some shares early this year. A few week later, I used the money I made from the sale to reinvest in shares of other companies. In other words, the money never left my trading account as I didn't cash out.
During my tax return, it appears that ATO ask me to declare the sale for tax purposes. Is this accurate?

I understand the sale may have trigger a CGT event but I thought I only need to declare it when cashing out the profits, e.g transfer money to cash/saving account.

Financial

Comments

  • Benoffie on 13/09/2022 - 00:29
    +19

    Every time you sell, regardless of whether you cash out, you trigger a CGT (or loss) event. Discounts etc are then applied based on time owned.

    So yes, you must declare them all.

    The exception is if you run a business as a trader.

    https://www.ato.gov.au/Individuals/Capital-gains-tax/Shares-…

  • jv on 13/09/2022 - 00:30
    +5

    Declare Tax??

    They will already know… So yes…

  • jv on 13/09/2022 - 00:32
    +8

    but I thought I only need to declare it when cashing out the profits

    Who gave you that financial advice?

    You need to change accountants…

    • original15 on 13/09/2022 - 07:16

      I guess this is how bezos and musk got rich, never cash out of the trading account people!
      Sell shares for profit, but don’t get that profit in cash format!!

      • macrocephalic on 13/09/2022 - 08:12
        +8

        Lots of very rich people do something similar. Instead of cashing out you take out a loan and use the investment as collateral.

  • avoidfullprice on 13/09/2022 - 00:54
    +6

    I thought I only need to declare it when cashing out the profits, e.g transfer money to cash/saving account.

    Nope. Not sure who you got the advice from.

  • andrek on 13/09/2022 - 05:48
    +2

    With ATO it's all about a taxable event. Moving funds from broker account to your bank is not a taxable event. Selling shares is, so you get taxed then.

    Here's the kicker: if your company grants you shares as part of your compensation - you will be paying tax on those as soon as they vest even if you haven't sold them.

    Kicker #2: if the company grants you options - you will be paying tax on those when they vest, even if you didn't exercise them so technically you don't even have the shares.

    In both cases vesting is a taxable event, so you pay tax then.

  • EightImmortals on 13/09/2022 - 06:30
    +6

    "the money never left my trading account as I didn't cash out. "

    Yes you did. You cashed out of one lot of shares at a profit/loss which went back into your account, you then purchased more shares with that profit/loss. These transactions will have been tagged by ze ATO automatically and will (should) pop up by themselves on this years tax return. You may need to recalculate in accordance to how long you owned the shares etc, if over 12 months then you only need declare half the profit and pay ze tax on that. Yes taxation is theft but if you don't comply they will tax you even more (fines, court costs etc) and possibly kidnap you and throw you in a cage for disobedience.

  • capslock on 13/09/2022 - 07:44
    +5

    Your "trading account" is a "cash/saving account" so yes, you did cash out your profits.

  • Donaldhump on 13/09/2022 - 07:51
    +1

    of course

    otherwise every man and his dog would never have the 'cash' leave a trading account

  • Freitag on 13/09/2022 - 08:08
    +1

    If you made a profit when you sold you need to declare it. Doesn't matter where you keep that profit.

  • JIMB0 on 13/09/2022 - 08:14
    +1

    I bet if you'd made a loss you'd be keen to claim that on your tax return.

    Trading shares is not very tax efficient. It's best to hold onto them for a long time.

  • dust on 13/09/2022 - 08:26
    +5

    This is why they need to teach tax at school.

  • SF3 on 13/09/2022 - 09:04
    +1

    Sold Some Shares, Then Reinvest, Declare Tax??

    You can't avoid declaring it on your tax return.

    You can avoid declaring it for tax evasion purposes. /s

    • lazax on 13/09/2022 - 12:25

      Maybe this is the answer I'm looking for lol

  • Seraphin7 on 13/09/2022 - 09:06

    ATO is correct. You pay any CGT on the sale of the shares (not on cashing out of trading accounts, etc.).

  • Duckie2hh on 13/09/2022 - 09:14
    +1

    You pay CGT. Lesson learnt. Move on.

  • JimmyF on 13/09/2022 - 09:16

    I sold some shares early this year. A few week later, I used the money I made from the sale to reinvest in shares of other companies. In other words, the money never left my trading account as I didn't cash out.

    It doesn't matter that the money didn't leave your trading account. You had a 'transaction' that purchased shares for xyz, sold for yzx. This is what the ATO cares about.

    Your new purchases are the start of a new transaction that will end when you sell them, which the ATO will also care about.

    During my tax return, it appears that ATO ask me to declare the sale for tax purposes. Is this accurate?

    Hint the ATO already knows what happened.

  • ESEMCE on 13/09/2022 - 09:49

    This is the time to use an accountant…
    Too many legal loopholes to jump through to manage yourself with any confidence IMHO.

    • vikvance on 13/09/2022 - 10:10
      +1

      It depends on whether the person is interested in researching and learning about tax laws.

      The info is quite easy to find, and MyGov helps to guide you through the process.

      That said, OP is clearly uninterested in researching & learning about tax laws, because a simple google search would have answered their question. So, they should definitely use an accountant.

    • Thor Bargain God on 13/09/2022 - 12:18

      I am an accountant but I don't practice in tax. Believe me, there are very few loopholes and none that would apply in this circumstance. You can thank the good old ALP for instituting a tax on people investing hard earned money into the economy at substantial risk and being up for as much as 45% tax. They are not fans of people getting ahead and most of them were members of the communist party at university, so the concept of private ownership still irks them a lot. They also implemented fringe benefits tax at 48.5% to discourage employers from providing benefits. For instance, if you worked for Holden and they gave you a car that you proudly had a hand in producing, about half the value would have to be paid in FBT. Companies also used to incentivise employees by providing bonuses as shares to encourage behaviours that would help align employee interests with that of the business, however the ALP didn't like that either, so they limited the amount that could be granted without excessive tax to $1,000 p.a. Investing in shares used to be the way until all of this nonsense, and a lot of people switched to investing in houses. Negative gearing and a government that is hell bent on raising immigration through the roof for the purpose of Australia "inevitably" becoming a republic has better suited people, especially the uneducated in terms of those who can't read balance sheets, appreciate commodity risk etc. In the US, the capital gains tax rate is no higher than 15% for most individuals but it can be as low as 0%. I believe this is a fairer situation that still encourages investment. Don't think you can rush over there to invest though and only pay these rates, as the ATO taxes you on your global income, so you'll still be up for tax at your marginal tax rate. The only saving grace since the ALP stuffed investing for a lot of people was that the Liberals introduced the 50% discount for investments held for more than a year.

      • Mr Haj on 13/09/2022 - 13:10
        +2

        Companies pay their shareholders differently in the US because of a differing tax system. In Australia we pay our shareholders with fully franked dividends so the individual only has to pay tax on the difference between their tax bracket and the company's tax rate (30%). For many individuals this is only 2.5% (most individuals are in the 32.5% tax bracket). Don't sell your shares and you will hardly pay any tax.

        • Thor Bargain God on 13/09/2022 - 13:32

          The franking system is only relevant to company profits paid as dividends but it has nothing to do with capital gains on the sale of the asset. On that topic though, the tax rate for companies and individuals is lower in the US too. The ALP were also discussing abolishing the franking system leading up to a recent election, but thankfully they didn't win. So basically they wanted the company to pay 30% and you up to 45% on the income - up to 75% tax in total on dividend income. What greedy socialist scum bags. Gladly they lost, and possibly due to this, but you know their agenda. The last election they lost, they were also looking at abolishing negative gearing. God knows what we voted for this time - Albanese learnt from these losses, so he just had one simple policy - "we don't like that bad man Mr Morrison and trust me, I am a good guy". So far we now have 2-3 referendums on the cards and who knows what… Talk about Trojan horse tactics.

          • ESEMCE on 13/09/2022 - 13:58
            +2

            @Thor Bargain God: Libs have had ~20 years in power (including ~10 where they held balance of power in both houses) to change/overturn CGT but have never raised it as an issue as far as I'm aware.
            So they either think it's too much trouble to overturn or they're happy with it. I can't see why it would be difficult to change, so chances are they think it's OK policy.

            Abolishing Negative Gearing for existing properties is not a bad thing IMHO bring it on, it's just middle/high income welfare and the results of the past 30 years experiment are in. It's done sweet FA to provide sufficient rental properties such that people are now living in Caravan Parks.
            Billions of dollars wasted just to pump up Property prices for which the main beneficiaries are State Governments (Stamp Duty) and Banks (significantly higher Interest payments).

            As for Referendums.
            There's one that was taken to the election, to bring an "Indigenous Voice to Parliament" so clearly nothing underhanded there.
            The only other referendum topic I've heard talk about and has already been publicly rejected for this term is for a Republic.

            Care to name the other 1 or 2 referendums?
            Particularly those that might meet your Trojan Horse allegation?

          • Mr Haj on 13/09/2022 - 15:12
            +1

            @Thor Bargain God: If the franking system was abolished then a lot of companies would have reduced their dividend payments to shareholders to instead retain wealth within the company (i.e. increase in share prices, share buybacks). Share holders would then make most of their profits when selling off shares. This way if you were in the 45% bracket you would only be paying 22.5% tax on any gains, assuming you've held the shares for more than 12 months. It's in the company's best interest to provide share holders with the most tax efficient way to pay their shareholders.

            • Thor Bargain God on 13/09/2022 - 18:49

              @Mr Haj: True, but only quality, high growth companies should buy back their stock or reinvest in future opportunities. Otherwise it is like throwing all of the money into an incinerator. Bed, Bath & Beyond is a prime example (https://www.barrons.com/articles/bed-bath-beyond-stock-buyba…) but there are plenty of others. When US companies mature like AT&T, they still tend to (or should) pay out a significant portion of their profits (e.g. 6.39% yield) as dividends. That money is better in shareholder's hands than that of the company, as they don't really have any growth opportunities and to invent one just for the sake of it would be pure folly. Just about all Australian companies are truly decrepit and their growth is only governed by immigration. I'm proud of my nation but to be honest, it has ended in tears for nearly every Aussie company that has tried to expand overseas. Australia is an extremely high cost nation to do business. The prior CEO of Rio Tinto stated that Australia was its #1 investment destination when he started but by the end of his tenure, it was in last place, behind all sorts of dodgy places with inferior resources and heightened geopolitical risks. The cost of blue collar labour in Australia absolutely chokes return on investment. I'm in the same boat, as I switched all of my investments and super to the US a few years ago. I also know that the balance is not right in the US, where people are working for $2 an hour, limited holidays and excessive hours, however the best way to justify it ethically is the fact that US citizens have consistently voted to preserve this way of life.

  • Ughhh on 13/09/2022 - 10:33

    A colleague thought the same thing, so he was buying and selling (almost day/every few days trading) for tiny 2 digit profits.

  • Drpepper666 on 13/09/2022 - 11:10
    +1

    Lol

  • John Kimble on 13/09/2022 - 11:50

    I didn't cash out

    You spend a bit of time at the casino, do you? I suppose shares is similar to gambling (at least for me 😔).

    • Thor Bargain God on 13/09/2022 - 12:26
      +2

      At least with gambling there is 0% tax, unless you somehow declare yourself a professional a it.

  • seraphim2017 on 13/09/2022 - 12:15
    +1

    Also, if you bought the same shares within 30 days get advice on wether this constitutes a wash sale type event, which the ATO doesn't like at all.

    If you are claiming a capital gains loss they might flag it to look at. If different shares, then maybe not. Tax and shares are complex, understand them or get good avice from an expert who does which in the long run will probably pay off!

    You sold an asset, you have to declare that to the ATO, along with how long you held it to calculate your CGT liability if a gain. Keeping the proceeeds of sale in the account still means you sold them. The ATO will know.

    TL:DR. Your trading account is just another type of banking account.

  • Thor Bargain God on 13/09/2022 - 12:33

    The 45 day "at risk" rule is another that a lot of people don't know about and affects your right to claim any franking credits attached to any dividends earned during the period of ownership. It's got little to do with CGT but just thought I'd mention it while on the topic of short periods of ownership. So it doesn't tend to help if you just get in and out of a stock only for the dividend.

  • [Deactivated] on 13/09/2022 - 12:54

    The balance in your cash account with the trading company has nothing to do with in regards to the tax applicable due to the CGT events that have occurred due to sale of financial instruments.

  • Drakesy on 13/09/2022 - 13:22

    So if i sell my investment property and then buy another investment property straight away, by your logic i should be exempt from CGT?

    FWIW as soon as you cashed out your shares you had a CGT event, there's no skirting around it.

  • CrowReally on 13/09/2022 - 17:14

    Are people just not scrolling down before they post or is there some ranking system whereby every member of the board is meant to take it in turns to say "just because you didn't take the cash out, doesn't mean it's not CGT, that's not how it works"?

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