I understand and have spent some time in this area. onthepunt is correct. looking at the merit of your answer preferring First In First Out and suggesting it gives greater possible outcomes for 50% CGT against the merit of others suggesting you can choose which purchase to offset. You say that you cant chop and change........isnt being able to choose which trade you wish to offset against, just great? Its not chopping and changing.
In the case of discussion and explanation, i would take the loss situation. Its chicken feed in $ but it would also depend on other factors. l
Lets say farmer Joe/Jill has a carried forward loss of $1,000 from a previous year and has 2 other holdings (which could be the same share, just different entries)
holding one has a profit of $1,000 unrealised and held for 2 months.
Holding two has a $1,000 unrealised profit of $1,000 and held for 13 months.
Life scenario; Something urgent comes up and Mr farmer have no funds spare. The long lost son rings up and is held hostage as a service personnel attendant for their staff, and its at the playboy mansion; and Hugh is no where to be found (thought to be extinguished) and im concerned my son could follow the same fate in 50 years.
My son requests that I shear the sheep again as he needs $1,000 to pay his captors. not only did I fail to teach my son about farming, I try to explain that we cant shear the sheep everytime we need funds. He goes into melt down and feels he has no future and he feels used; and cant even spend time with his mates. I need to help him get $1,000, but first ask him to off load his daily grind to me, so its a weight off his shoulders.
Which holding do I sell?
1/ Holding 1 has taxable income of $1,000 if I sell and this is offset by the $1,000 loss I have bought forward from the past. Zero tax liability
2/ Holding 2 has a taxable income of $1,000 also, but as its held over 12 months, i reduce this amount by 50% and apply it to my current other income and pay tax as income on this reduced amount.
Choice 2 above is effected now by the carried forward loss, so the 50% CGT reduction does not apply and the result works the same as choice one above.
My view is that you would sell the example 1 above first as its under 12 months and will be offset by carried forward loss, and you would still retain the CGT entitlement to example number 2 above for its later sale.
In effect you have saved tax on $500 at your MTR (marginal tax rate) by thinking your strategy through and discussing this with your tax advisor.
I trust the method of my scenario above was easier to understand in the manner i used as we all learn better by using common and likely situations that are regular and believable. I have used one assumption, and that is that our sons can get way laid and mislead in their younger years. This could be untrue? I dont know, mine is just 13.
I will not use this example to teach him about CGT strategies as we have no sheep.
Always seek advise and this is all IMO and I may have been under the influence of a dream to be that prodigal son.
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