Tax Dilemma

I’ve read in other posts like $200 Party those investors facing a tax dilemma should they sell their CSL shares (lucky you). But what would you do in a similar situation?

Lets suppose you’ve bought some CSL shares back in 2009 and hung on to this day, you’re sitting on a huge net capital gain of say $1M. You’re feeling pretty smug thinking how clever you’ve been but you know when you offload the shares you are going to get hit with the mother of all tax bills.

Under the current tax regime, because you’ve held the shares for over 12 months you are entitled to a 50 percent discount so only half of your capital gains would be assessable as income (The proposed labor tax policy on CGT would reduce the discount to 25% for those assets acquired after 1^st July 2017 and won’t be grandfathered. E.g. If purchased prior to 1 July 2017 you keep the 50% discount but let’s not get into that)

So, if you sell all your CSL shares and realise the net capital gain of $1M dollars you will be faced with a $208,232 tax bill (includes a 2% Medicare levy) Ouch!

But what if, instead of selling all the shares in one go you sold off bits and pieces of your holding every year. For example, in year one you sell CSL shares to the value of the lowest tax bracket - $18,200 and thereby incur no tax on realisation, assuming no other income – wages, dividends and interest etc. In year two, you sell a similar parcel to the value of the lowest tax bracket amount.

The trouble with the above is that I have assumed CSL’s share price will remain relatively stable and / or grows in the future. Also, its going to take many years to fully dispose of your holding.

This isn’t (cough) tax evasion 101 and I am no tax expert (and need I say this isn’t financial advice), after all, yours truly didn’t have the foresight to buy CSL shares through a family trust, super fund or other tax vehicle like other budding tycoons.  This post is to encourage discussion and get people thinking outside the square. Please, I am not interested in ideas of going to Majorca (quick, where is that respirator?)

For me, off loading my CSL holding is not something I want to do unless personal circumstances warrant it or CSL management stuffs up the business. IMO CSL is one of the best businesses listed on the ASX, its competitive strengths, abundant growth opportunities, real cashflow generation abilities and strong financials, along with excellent management make it a keeper.

Go CSL!


Disclosure: I am long CSL