Using share trading to distribute property capital gains

I wonder why we can't simply use shares trading as a way to distribute capital gains over few years.

Example.
Say you bought a property for 400K in 2010. After 10 years, selling for 700K.
Taxable CG = 300/2 = 150K.

To spread the above between two years, you buy shares in 2018 for say 500K.

Say 250K worth of shares gone up by 40% and the other went down by 40%.

In 2019, sell those shares gone up in value.
Taxable CG = 100/2 = 50K.

In 2020, sell those shares gone down in value. That is a 100K loss.
Add this shares loss to the property gain = 200K gain
Taxable CG = 200/2 = 100K.

If the trading is done over more years then it becomes even more effective.

 

thats the advantage of shares. smaller cost bases so easier to dispose of smaller assets.

to be honest though the example is very hard to comprehend.

 

So you are selling the shares at a loss in the year after the capital gain is realised? That won't save CGT on the property sale, but perhaps can be for future capital gains on shares.

 

Noooo..

Year 2018 - Buy 500K shares
Year 2019 - Sell 250K shares which is worth 350K now. Taxable CG = 100/2 = 50K.
Keep the stocks which has gone down in value.

Year 2020 - Sell the property. Capital gain is 300K.
Sell the remaining 250K stocks at 150K.
Taxable gain = (300-100)/2 = 100K

At the end of the day, I haven't made any profit or loss with the stocks.

 

If you are holding assets that have a Capital Loss, AND you want to get rid of them because you don't see them rising in value, then selling in the same year (or years before) you sell an asset at a significant CG is definitely beneficial.

Trying to sell shares at a Capital Loss JUST to offset a Capital Gain seems silly to me, avoiding tax to your detriment isn't beneficial.

 

So how to predict this outcome?

 

No need to sell the first lot of shares. Just sell realise a capital loss in the same year as the capital gain.

 

You can't. I used the overall zero portfolio change in this example.
But, few would go up and few will drop.

 

But, the same year has the large property CG.
I'm trying to spread that large CG by selling the first lot the year before. Second lot, which is has dropped, is sold with the property.

 

Not avoiding tax.
Even if you believe the shares will recover, why not sell it with the property? This will reduce the CG.
Then, buy the same shares.

 

All you have to do is sell the loss in the same year as the capital gain. The other shares with the gain just have to be sold in a different year.

 

That sounds like a wash sale. Part IVA

 

Then your strategy doesnt work as the capital loss will be denied. Its called a wash sale and part iva will apply. Ato has a ruling on this exact scenario

https://www.ato.gov.au/law/view/document?DocID=TPA/TA20087/NAT/ATO/00001

 

Yes, that's practically the same thing.
But, if you sell it earlier then it let's you redo the same thing again and again. In effect, you end up with your original investment + capital losses.
Eg.
1. Invest 500K. Say the first 300K becomes 500k and the second 200K becomes 100k. Now you have 500K + 100K loss.
2. Do it again. You'll have 500K + 200K loss.

 

White washing wasn't really the really the point here.
However, I don't think it would matter if you replace ANZ with CBA or PLS with GXY.

 

I am not sure i get it, but are you saying the sooner you sell, the sooner you can invest again potentially making a loss?

 

Yes.
My point is, trade frequently to realise profits and collect losses. Finally offset all losses with a larger property gain. In effect, we are distributing the gain across multiple years.

 

Yes that is a point, but everytime you sell at a profit you will be losing a portion in tax. So will have less capital going forward. But if you can sell without CGT, such as having a lower income one year then it is certainly a good idea to harvest capital gains so you are not wasting a tax free threshold.

 

read it properly. it is an issue.

2. The type of wash sale arrangement this alert covers is where a taxpayer disposes of, or otherwise deals with a capital gains tax (CGT) asset to generate a capital or revenue loss, but where in substance, there is no significant change in the taxpayer's economic exposure in the asset. This may occur where the interest in the asset is in some way reinstated by the taxpayer, in order to apply a resulting capital loss or allowable deduction against a capital gain or assessable income already derived or expected to be derived.

 

Depending upon the extent of trading the gains / losses may not even be a CGT event and the basis for determining profits may important eg how do you value closing value of shares on hand at 30 June ?

Predicting events which generate gains and losses are difficult and subject to external forces

Share markets and property markets do not rise & fall in a related manner. Your property could have stagnant growth and the shares could all lose 30% of value. A 30% loss then requires a 42.8% growth be regain the original value. If a 30% drop was not predictable what makes a 42.8% gain predictable ?