Capital Gains
If you like receiving mail—and envelopes which contain cheques rather than bills—then you’ll love being a shareholder. But there is one drawback of owning shares, but only if you view the glass as half empty. If you make a profit when you sell—the taxation term is a capital gain—then you must pay tax on the profit at your marginal rate.
This tax on profits is called capital gains tax, but it’s not as scary as it sounds. If you make capital losses, and occasionally you will, then you can offset them against capital gains in the same year. Or if you don’t have any capital gains that year, the lovely people at the Australian Taxation Office allow you to carry them forward until you do.
In fact, those tax people are even more generous than you realise. If you hold the shares for at least one year before you sell, you only pay tax on half the gain. It’s a great incentive to keep your shares for at least 12 months. In fact, most really successful investors usually hang on to their shares for much longer than that.
How do you work out your capital gains or losses?
Well, it’s quite simple. You’ll need your ‘buy’ and ‘sell’ contract notes, and you just subtract the total proceeds from the total cost. If the difference is positive, it’s a capital gain, if negative, it’s a capital loss. And if you’ve held the shares for at least a year, you only need add half of any gain to your income. Of course, if you’re paying tax on your gains, you shouldn’t view it as a negative. Quite the contrary, in fact—it means you are successful at this share investing thing!
As everyone’s taxation position is different, the above information may not apply to you. As we cannot provide personal advice, please consult your accountant or adviser to determine your taxation position.
Congratulations!
You have completed the What Comes Next tutorial, the final tutorial in this series.
