Overcoming the mental hurdle of paying tax on capital gains

I would like to sell some shares and put the money into super but I will incur 9.5% CG tax (19% with 50% discount) or if I wait until next FY it will be down to 8% (after 50% discount).

However, I am finding it difficult to overcome the mental hurdle of incurring this tax even at this low rate as I don't really need to sell the shares but I would prefer to start moving money into super. I realize that I will have to pay CG at some time when they are sold.

Does anyone else baulk at this mental hurdle and what have you done to overcome it?

Is it a matter of crunching the numbers and weighing the tax vs opportunity cost/future tax savings?

Have I been too focused on "my portfolio is worth X" rather than the reality of "my portfolio is worth X minus tax"?

 

I think most have this hurdle - some even work extra years because of it.

Just compare it to paying tax on your salary. Its twice as 'good' because of the 50% discount

 

% tax is meaningless, if shares go up 12%, you will pay more tax waiting until 8% bracket, and miss out on possible tax free gains compounding. If shares fall 12% you will you will also have lost money waiting for cheaper tax rate. If you can put it in super as non concessional contibution @ 9% it is a pretty good deal, better than 15% most are happy to pay.

 

After owning it for 17 years I've finally got round to selling my Docklands apartment. I would love to have a massive CGT bill or, for that matter, any CGT bill.

 

Do you have access to concessional super contributions?
This may lessen the CGT payable.

 

I think of it this way - the 50% CGT exemption may not be around forever!
My first investment I sold in the 90’s was calculated by using CPI It was fairly close to neutral.

 

I kind of agree with Ruby Tuesday’s sentiment. Don’t worry about paying tax too much. Focus on making more money.

 

It may assist to look at the figures. How much capital gain and income after costs are probable for each option? Due to unknowns it can be hard to be certain. Tax rates and superannuation rules may change, shares and dividends may rise or fall, anything could happen. I try to avoid CGT by holding forever, and if I sell an asset that has gone up in value I attempt to sell one that has gone down in value and is unlikely to recover. Alternatively, there may be capital loss carried forward.

I have cash, shares and property in superannuation and direct holdings. Except for mandatory drawing down of superannuation my intent is to not change anything. Cash is accumulating quite nicely and is going into a high interest savings account pending renovations.

 

Never had a problem playing CGT , when the marginal tax rate is in the 40’s

We’ve done it consistently since we started investing over 20 years ago . We sold to take profits and on one occasions we sold two long term buys which were nice properties , but cash negative , as a defensive move ahead of a possible End of fixed interest Cliff .

This has meant we’ve been able to pay off debt , buy when others can’t get finance , have a very comfortable sleep at night factor .

Heading into retirement , we have one small loan ( fully offset ) and outside that a debt free portfolio , good cash flow , LOC’s available if we do decide to buy something and a cash buffer that is bigger than what most people have is their SMSF when they retire .

I can look back at several key moments / buys we have had in the last few years and safely say that we couldn’t have done a lot of what we’ve done IF we had kept everything , maxed out out borrowing capacity continuously and not sold , taken profits and paid tax as we’ve gone .

Our best buys have come when the market has been crap , borrowing has been tight but we’ve been able to pay cash ( loc ) or when the market has been moving and we’ve been able to buy knowing we’ll have no problems with finance or we’re paying cash ( because we’ve sold and have cash )

cheers

cliff

 

I tell myself that at least I know the government will put that money good use.

When that invariably fails I take solice in the fact thats its a high quality problem to be faced with a tax bill. Carrying foward a tax loss wierdly feels better, but we all know its not.

 

Only sure thing in life is death & taxes, so just suck it up.

 

[QUOTE="MangoMadness, post: 1349877,

Have I been too focused on "my portfolio is worth X" rather than the reality of "my portfolio is worth X minus tax"?[/QUOTE]

if access to superannuation is within sight I would be using the concessional and non concessional caps if you can.

I recall a conversation where I was lamenting on a large Medicare levy, on top of a large tax bill to a friend, to which the reply was, “listen to you !! I just received an 80k Medicare levy”,

I guess we all have tax’s to pay, and some much larger than others!!!

Personally I never give it a second thought after it’s paid. It gets plenty of thought before, but once complete it’s forgotten about.
just pay the piper and move onward and upward!!!

 

The worst case CGT cost for a resident taxpayer aftre 1 year of ownership is a MAX rate of 24.5% on each dollar of apparent profit. The other 75% PLUS other equity is retained. Other equity considers the reduced debt over the period of ownership. So if you paid down the loan by $50K this adds to the CGT profit too as cash that is tax free. Crossed loans can work the opposite. Lets say you have a loan split of $50K against the property being sold for stamp duy and purchase costs for a different property. This loan may need to be discharged too and so negative equity will suck cashflow from your net equity and also reduce future interest deductions.

I alaways say anyone who says I have a property porfolio of $3m is talking out their bum. The true wealth is that value MINUS debt MINUS unrealised tax. Its Trump Accounting to suggest your have $3m of wealth. $3m at 80%LVR is $600K of wealth that could be further impacted by tax. And many seek to maximise LVR which certainly can harm net equity when crossed loan and sales occur. eg The $600K could have $100K of tax and $100K of crossed loan leaving $400K clear cash on sale.

Importantly too when property is all leveraged and values fall this comes out of the equity elemnet. So a $400K fall in value could actual mean your net equity is then $0. BUT I also consider you only lose equity when you actually sell. If you dont sell its just paper profits and losses. Not real. If you can ride out and wait it generally goes away when the market rebounds. Its forced sales that hurt.

 

This. Every chance there will be a Labor/Greens (informal) coalition after the next federal election and CGT is a likely target for reform.