Shares - 50% CGT over 12 months

Discussion in 'Accounting & Tax' started by thesuperman, 13th Feb, 2021.

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  1. thesuperman

    thesuperman Well-Known Member

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    Jack & Jill (via joint names) are classified as share trading as a business, therefore they aren't eligible to a 50% CGT discount and all profits are treated as business income rather than on a CGT basis. None of their shares have been held over a year. This has all been done with one broker.

    Now they plan to have hold a few shares for over a year. If this is done with the same broker, will they be eligible for a 50% CGT discount on those shares? Is it possible to nominate all shares held over a year to be treated on a 50% CGT discount basis?

    Alternatively, do they have to open up another brokerage account with a different broker to hold those shares over a year? If so, what happens if with the 2nd brokerage account they end up trading shares before the 1 year period in conjunction with the ones held for over a year?
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Whether there is "a business" may be disputed and likely irrelevant. A profit making intention is the key aspect. In these instances it is wise to segregate assets INTENDED to be held longer term v's those being traded on revenue account. The way to do that may be a seperate broker account but the actual holdings should in themselves demonstrate being intended and also actually held 12mths+. Selling any prior to the year doesnt mean they arent on capital account but if the frequency and duration of holdings in both broker accounts looks like "trading" then the CGT basis could fail.

    One major way broker #2 account could be questioned is if the shares being acquired dont produce income. Therefore the sole reason for buying is to produce "profit" from those holdings rather than "income". ie Not a CGT asset..So the CGT basis may fail. In the pre-CGT days this was the common tax basis. Nothing has changed and misunderstanding the capital v revenue basis because of focus on "CGT" may be a matter that is a risk. Tax advice would be wise. Its a matter many younger tax advisers dont fully consider but the old tax basis is well founded in case law and still applies.

    I always like to use an example with land. Its like buying land. If you have a house on the land and rent it then the rent is income. The CGT element is any change in property value. Pre-CGT rentals werent taxed on changes in value !! But are now under specific CGT laws. But if the land is vacant land it cant produce income...All you can produce is profit on resale - Taxed as income. There cant be a CGT event if its not a CGT asset.

    This is also potentially a sign of poor structure.