Chart Update, page-719

Too right arms,

If you want to sleep soundly at night come tax time be aware of what the rules of the game are.




Hood Sweeney director of accounting and business services Matthew Fox said the ATO last month clarified its attitude to claiming tax losses from "wash sales'' and would deny any tax losses claimed this way.
"A wash sale is described as a sale and purchase of the same asset within a short period of time where the sale and purchase cancel each other out and there is little or no change in the economic exposure of the owner of the asset,'' Mr Fox said.
He said it had been a widely used strategy by people facing a capital gains tax bill who also had some assets where a capital loss would occur if they sold it - which could offset much or all of the gain.
"For example, Pete has sold an investment property and made a $50,000 gain. In his share portfolio he has BHP shares that cost $70,000, but are now worth $50,000. His strategy is then to instruct his broker to sell the shares on the market and re-purchase them the next day. He then realises a loss of $20,000 which he uses to reduce the gain on the investment property.''
Mr Fox said the ATO's recent ruling was that if the main purpose of the wash sale was to obtain a tax benefit, the loss would be denied.
"The loss will also be denied if Pete rather than re-purchasing in his name purchases the shares in a trust controlled by him,'' he said.
Mr Fox said to avoid an ATO rejection, the investor would need to show another purpose other than the tax benefit, such as restructuring their affairs
"Other options to avoid this problem are to delay the re-purchase decision and to re-purchase based on market condition changes or independent market research, or to purchase an alternative stock, like Rio Tinto in Pete's case,'' he said.
"Caution needs to be exercised if you are intending to realize an asset to crystallize a capital loss as the rules for deductability of the loss are now a lot stricter. You should seek the advice of a suitable qualified taxation advisor before implementing such a strategy.''