tax on selling shares

Discussion in 'Share Investing Strategies, Theories & Education' started by Investor999__, 12th Nov, 2008.

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  1. Investor999__

    Investor999__ New Member

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    Hello guys,
    need some help understanding how tax applies when i sell shares, Please consider the following scenario

    I bought 500 Mirvac Shares (MGR) @ $1.15 = $575 + 30 brokerage = $605 and i sold it @ $1.53 = $765 + 30 = $795, not waiting 12 months, so my profit is $190, so how much tax will i pay on my profit.

    Please explain me in details as its imporatant for me to understand, whether i should continue investing or it's not worth the effort

    thanks for your time guys
     
    Investor999__, 12th Nov, 2008
    #1
  2. Simon Hampel

    Simon Hampel Founder Staff Member

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    The net capital gain ($190) is just added to your taxable income at tax time.

    Since you held for less than 12 months, there is no CGT discount (otherwise, you would add only half of that gain to your taxable income).

    The amount of tax you pay depends on your income, and other deductions you might have (eg realised capital losses offset capital gains, and if you have other large tax deductions, your taxable income might drop down to a lower tax bracket).

    In simple terms though:

    If you are on a 30% tax bracket, you will effectively pay $190 * 30% = $57 tax

    If you are on a 40% tax bracket and pay 1.5% medicare levy, you will effectively pay $190 * 41.5% = $78.85 tax
     
    Simon Hampel, 12th Nov, 2008
    #2
  3. Investor999__

    Investor999__ New Member

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    so if i am earning 45K incl super i fall on 30% tax bracket, so i believe i will be paying 30%, which is fair i belive. any suggestions on whether i should continue doing this or i would be better of trading
     
    Investor999__, 12th Nov, 2008
    #3
  4. Simon Hampel

    Simon Hampel Founder Staff Member

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    What are you trying to achieve ? What is your goal ?
     
    Simon Hampel, 12th Nov, 2008
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  5. OLI__

    OLI__ Well-Known Member

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    Hi Sim, I assume in Investor999's example the $190 profit is claimed as a Captial Gain (Item 18 of the individual tax return) because it was a one off sale.

    If he were to commence trading and buy his 500 MGR shares back a few weeks later for $1.20, resell them for $1.60, buy them back a few months down the track for $1.30 and resell them again for $1.50 the ATO would consider him to be 'in the business' of buying and selling shares, so all profits would be seen as income instead of a capital gain.

    If his profits are classed as income (and declared in Item 15 as Net Income from Business??) he would be unable to offset these profits with any realised capital losses.

    Is my understanding correct?
     
    OLI__, 12th Nov, 2008
    #5
  6. Neil_Salkow

    Neil_Salkow Member

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    Hey Investor999

    I'm not sure I understand your question here - should you continue doing what you are doing (i.e. buying shares and then selling them when they are up in price) or trading - what's the difference?

    You are trading mate.... just not day trading.

    I suggest you read "The intelligent investor" by Benjamin Graham. He clearly illustrates the difference in between speculating and investing. If you have any further questions, feel free to PM me.
     
    Neil_Salkow, 13th Nov, 2008
    #6