Today, CGH Explains The Basics Of Capital Gains Tax On Shares and Cryptocurrency
Unfortunately, when you sell shares and make a profit, the ATO wants its share! Last month, we discussed how Capital Gains Tax (CGT) operates and how it affects people with regard to property.
Let’s Talk About CGT When Trading Shares Or Crypto
In this month’s blog, we take a closer look at CGT and what it means to the average punter when trading shares &/or Crypto. As tax agents, we are often asked about this, so please find below useful advice from our CPAs.
At CGH Accounting Services, our accountants are ready to advise on anything relating to tax, super, GST, BAS, small business accounting, management accounting, financial accounting, tradie bookkeeping, cloud accounting… you name it – if it involves digits – we’re excited about it!
The Number Jockeys at both our Ballarat and Torquay locations are skillful, experienced, fearless and aspiring fellows, who seize the day and live by the ancient accountants’ creed: Be audit you can be.
CGH Is Mad About Footy!
Actuary, sorry actually (that’s our second joke so far – yes, we’re keeping count, of course – and that makes three!) all our accountants are mad footy fans too, and they’re pumped about the AFL Premiership Match which is being played in Ballarat on May 20, at Mars Stadium. Between the Doggies and the Crows.
See the official AFL website for more information; tickets from Ticketmaster. Hopefully it’s a cracker game and should be a big night in town. Meanwhile, down Surf Coast way, there’s nothing the accountants at our Torquay office enjoy more than a cheeky ice cream after a hard day on the abacus.
Treat Yourself To The Annual Rocky Road Festival
So, they’re stoked that the Great Ocean Road Chocolaterie & Ice Creamery is holding its annual Rocky Road Festival, which runs throughout the month of May. Pop in to check out and taste a delectable variety of modern takes on this classic Aussie sweet treat. For more info visit www.gorci.com.au
What Are The Tax Consequences When Selling Shares Or Crypto?
So, without further accrue, whoops ado, let’s talk about CGT and shares. What are the tax consequences when you sell shares or Crypto? This is a pretty mysterious area for most people, and frankly, the best advice is to let a professional handle it. Our accountants at CGH are highly knowledgeable in this particular aspect of taxation. Nevertheless, it’s good to have a grasp of the basics.
The Business Of Trading Shares Or Crypto Currency
If you are in the business of trading shares or Crypto, there is a whole different set of rules which apply to you and your operation. The advice we offer in this article is for our Mum & Dad clients and others who dabble in shares as a way of investing and making the most of your money.
You may be individuals or joint investors or perhaps investing funds from the coffers of your small business.
The Good News Or The Bad News…
There’s good news and there’s bad news. You want the bad stuff first? If you have shares which go up in the value (that’s the idea, right?) then when you go to sell them, the Tax Office wants a piece of the action.
It sucks, but this is one of the ways they get revenue which pays for our roads, health, education, nuclear submarines etc. The good news is that you don’t really pay tax on shares per se, it’s more of a tax scenario.
Ask The Professionals
If dealt with skillfully, this scenario doesn’t have to be too gloomy. A profit from the sale of shares actuates a Capital Gains Tax event, but a loss means a tax credit – which is in turn used to offset other capital gains, and so on.
It has a somewhat cyclical nature. It certainly doesn’t need to be a vicious circle though, if handled correctly.
CGT Kicks In On Shares Purchased After September 21, 1999
Basically, in its current form, CGT applies to individuals or joint investors who have purchased shares after the date of September 21, 1999. If you now choose to sell those shares and you make a profit, there will be tax implications.
These implications are dependent upon the length of time you have had the shares, the amount of the profit and your marginal tax rate, which is determined by how much you earned.
Why You Benefit From Using A Tax Agent
The amount of the profit is the sale price, less costs. These include the cost base and any purchase or brokerage fees. As you can see, this gets tricky, which is why we recommend leaving it to tax agents to get it right for you.
It can get really difficult to understand when we wade into the murky waters of demutualisation, which is when you may have shares which you technically didn’t buy yourself, such as in certain circumstances through organisations such as AMP, NRMA or NIB. In these cases, you should be asking your trusted tax agent to sort it out, for sure.
Here’s An Example Which Makes It Easier To Understand:
Say you bought a bunch of shares for $10,000. Then, a little down the track, you sell them for $15,000.
Nice work, right?
You did this through a broker and paid a commission to them of $110. So, the profit in your hand is $4,890. Now, if you sold these shares within 12 months of buying them, then you will have to pay tax on the entire profit.
Reducing CGT
If you hold on to the shares for longer than 12 months before selling them, then you should be liable to pay only tax on 50% of that profit. So straight up, there’s your golden rule when it comes to CGT – always hold onto to shares (and all other properties for that matter) for more than a year, or you will be stung.
Of course, we don’t always have a win when we sell shares. If you have a loss, this is offset against your other gains, and you can even carry the loss forward and use it later on – nice to have up your sleeve.
You can only use it in relation to capital gains though, not to offset salary or any other income. If the shares were purchased before September 1985, you are in fact off the hook entirely – there will be nothing payable if you sell them tomorrow and make a massive profit.
So, shares which are old are gold. Unfortunately, if you inherit shares, you are most likely liable for CGT, so it’s much better to inherit a house and/or money rather than shares!
Check The ATO Website For More Information
There is a lot of information about this on the ATO’s website. But for most of you who aren’t accountants who love this stuff, your eyes will start glazing over when you see the links to the ways CGT operates around dividend reinvestment plans, demergers rollover, trust non-assessable payments, foreign hybrids, staples securities etc. Yikes, right?
Let Us Help You!
Trust us! When it comes to CGT, you want a registered tax agent to look after it for you. At CGH, we eat CGT for breakfast! Contact us at Ballarat or Torquay today.
