i hate this tax selling!!, page-28

"why sell at the beginning of the FY when your tax position isn't known until the end of the FY."

Hi Rager- Didn't want to write a full example but in hindsight it would have been quicker as I am not communicating really clearly and is difficult to show workings of numbers.

To highlight the possible advantage (simply) and in reference to the situation mentioned previously where part of the persons income is known for the year and they are in a lower tax bracket with an intention to stay there. The assumption is that you are holding the stock (probably a non div payer like HDR) long term and smoothing the capital gain liability by sharing it between many tax years.

If you wanted more income in this current fin year and you held (brought forward from previous fin year ) HDR with a significant capital gain liability you could sell (all or part of) them in that financial year to realise the gain you want and still have exposure to the same stock holding.

The timing is not fixed at the 1 of July. You can do it anytime up till the 30th June but if for example you had a large capital gain which would give you the income for that year you required why not do it on the 1st of July and lock it in. If on the 2nd of July the share plummets you have missed the opportunity to lock in the income you wanted.

Sooner you do it with part of your holding the earlier in the Fin year the 12 month CGT discount is available to you in the next year so no point in not locking it in early if the stock is trading sideways for 3 months.


Back to your question

"why sell at the beginning of the FY when your tax position isn't known until the end of the FY."

Because you have the opportunity to define your income at a very small opportunity cost of only brokerage and this opportunity may not be available at the 29th june.

Your example and how you can lose.
I need $1 extra income this year and intend to hold parcel of HDR for many years to get Blue sky valuation

Prior june 30/04 hdr cost $1.00 BF from previous fin/y
30th June04 HDR $2.00
1 July04 HDR $2.00 I would sell & buy & lose BKG and lock in my income you would hold
2July04 HDR $1.40 Big price fall TIOF is a flop
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30 june 05 HDR $1.40 I have the option to sell and net my loss with my gain for a net 40c - Bkg or can take the full dollar as income . You can only ever get 40c income .


Sorry this has dragged on in the thread but I know some understand it (be mathematically obvious if I could post a rolling spreadsheet) and they are most likely retired with lots of capital assets and little cash income ( but enough to buy every worldly need) or just smarties smoothing sharing family income wealth at the lowest tax rate.