cgt question, page-6

tszy,
I don't know what the ATO can do to stop this because it's common practice. It is called "wash sales" and usually only applies to shares which are sold and bought within a short time frame of 24 hours or so. I have pasted a quote from GMK Centric Tax Accountants.

GMK Centric taxation director Chris Wookey said the ATO intends to apply the general anti-avoidance provisions of Part IVA of the Income Tax Assessment Act 1936 to a number of arrangements known collectively as ‘wash sales’ due to the perception of them having little commercial rationale.

According to a January 2008 tax ruling and April 2008 taxpayer alert, the ATO believes that if a taxpayer sells a parcel of shares on the Australian Securities Exchange only to buy them back within 24 hours, such an action was only explicable by a dominant purpose of obtaining a tax benefit and was potentially changeable using Part IVA.

“The ATO is not seeking to attack outright sales and genuine disposal of assets at market value,” Wookey said.

“Rather, it is targeting situations where economic ownership is effectively retained.”

Wookey said advisers who have advocated such wash sales could be prosecuted under the promoter penalty regime, with fines of up to $550,000 for individuals and $2.75 million for companies.

“Clients and advisers will need to take care not to undertake what may have been a traditional tax planning action when reviewing their 2008 tax affairs in the lead up to June 30.”