CGT 'free kick'?

Hi there,

Hypothetically, if I know I had a CGT bill of $10k at EOFY waiting for me, can I not get a 'free kick' by investing $10k in crypto/shares? If whatever is invested in goes to 0, I could offset the loss to the $10k CGT. Or, if the $10k share/crypto investment has a 10% gain, I could sell it and still just pay the CGT I initially was going to, along with the CGT for the additional?

Is this correct? and is this something that is done.

Thanks,

 

no

 

Gains and the tax on gains are not the same thing.

 

Only if you sell the crypto.

Yes but you have to sell to realise the gain.

 

I think the answers above are just answering whether you can offset the loss - i.e. no you can't claim this years loss against last years gain. You can only do it the other way around (i.e. claim last years loss against this years gain). The ATO makes more money that way by allowing it to work one way only.

For this reason its good NOT to put your tax funds into something that can go to ZERO! e.g. Americans made crypto gains before EOFY then couldn't pay the tax when it crashed down in the new financial year. It's a pretty harsh one-way rule but that's life when it comes to tax, kinda have to be cautious.

In answer to your other question - YES you can make investment returns on money that will be owed as tax in future. This is one reason I was happy to sell property at the start of the financial year, because I can earn yield on the money for 10 months before I have to pay the CGT. Of course I'll have to pay tax on the yield as well, so everybody is happy.

 

Thanks Scott, I should have stipulated that yes, I would be selling, also within the same FY... Eg if the crypto had a 99% decline and went to $10, I could offset the $10k gain with the (almost) $10k loss meaning I have a 'free-hit' (assuming i'll be selling within the same FY as the initial gain). Curious to know if this is something that people do.

 

Appreciate the detailed response and super helpful, thank you Dan. Using my example, I'd be claiming the loss in the same year as the gain, ie. sold a business last month for $10k gain owing next year. I have around 9 months to invest $10k as a 'free-kick' in let's say blue chip shares. If the share loses most of it's value (worst case) and is sold within the same FY, I could offset the loss. However if the shares go up 50% leading to a $5k gain, all i'd be doing is paying the initial $10k CGT + the new CGT from the $5k share gain?

 

If you had a capital loss you could realise a capital gain in the same year so they cancel each other out. If the loss came first it would be rolled over to future years.

But watch out if you sell something and buy it back to gain a tax advantage.

 

Got it thanks Terry, it would be a one-off sale at a loss (if a loss incurred) rather than buying back.

 

Ignoring the CGT calculation fail (tax v loss as noted above) I'm wondering why you would be happy to lose $10,000?
Do you realise that you are better off with an after-tax gain than a loss?

 

I'd much rather have 60% of something rather than 100% of nothing.

 

If i'm losing $10k based on CGT, i've lost the $10k regardless - my query is more, can I not invest an additional $10k in the same year with the aim of selling within the same year of the existing gain and IF I lose say 50% on the additional $10k investment, I can offset that from the initial CGT anyway. So not losing anything more than what I was initially anyway.

 

Nooo.... if you owe $10k CGT, that's probably from a $40k gain if it's a 25% rate after discount..
So if you now lose $10k you're not losing the tax, you're just making a loss against the original $40k (40k - 10k = 30k gain).
If this doesn't make any sense, better to see an accountant

 

Ahhhh, thank you!