Managing capital gains and losses
by Wealth Know How in DIY Investing
When you sell an investment for more than what you paid for it, you’ve made a capital gain. Unfortunately, that incurs capital gains tax - CGT. CGT is not a separate tax – the net capital gain is added to your income in the year you sold the investment, and taxed at your marginal income tax rate.
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Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 06 Mar 15
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When you sell an investment for more than what you paid for it, you’ve made a capital gain. Unfortunately, that incurs capital gains tax - CGT. CGT is not a separate tax – the net capital gain is added to your income in the year you sold the investment, and taxed at your marginal income tax rate.
Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
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Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
Timing is important when it comes to capital gains. If you buy and sell within a year, CGT is levied on the entire capital gain at your marginal tax rate. But if you’ve owned the investment for more than a year, a CGT discount is applied to your capital gain. For an individual this CGT discount may be half of your marginal tax rate.
For example if your marginal tax rate is 37%, your capital gains may only be effectively taxed at 18.5%.
A self-managed super fund that is in ‘accumulation’ phase, in which its tax rate is 15%, earns a one-third CGT discount if it holds an asset for more than a year. Subsequent sale of the asset incurs CGT at 10%. If theself-managed super fund has entered ‘pension’ phase the tax rate on income and capital gains from the asset becomes zero.
You can use your share portfolio to make strategic tax decisions. Nobody likes making a capital loss on a share. However using capital losses to soak up a capital gain that you’ve hopetfully earned elsewhere in your portfolio is a perfect way that may ease some of the pain. Rather than moaning about shares that have fallen in value, investors could look to use this situation to reduce the taxman’s take of their capital gains on or property that have done well.
Capital losses can be carried forward for use in later years. All you need to do is make a record of them in your tax return. When you make a capital gain in future years, you can deduct your loss from the gain.
Make sure you keep a record of any capital losses you make, as they may be used to offset any future capital gains. Know when you bought each parcel of shares. When using a capital loss to offset a capital gain, it may be a good idea to use that loss to offset a capital gain on a stock or property that you’ve held for less than 12 months — where no CGT discount applies. That way, you may get the full value of the loss offset.