TR 2008/1 Wash Sale

[alexlee]

Just reading this alert. I am at the moment planning to do this very thing: transfer shares currently held in my personal name into a family trust. The way I'm reading this is that the transaction must create a capital LOSS for it to be applicable. At the current market price, a transfer would result in a capital GAIN for most of the shares.

My question is that I have one share where the transfer at current market price will result in a capital loss. Will this be caught by TR2008/1, even though the rest of the share transfers will result in a capital gain and the net result will be a capital gain?

We're not talking a lot of money here just a loss of a couple of k.
Alex

 

[Deepmarine]

I read this alert a fair few weeks ago and don't have it in front of me currently, but my reading at the time is that the ATO will look at the purpose of the transaction to determine whether its a wash sale. So if you're transferring a basket of securities into a trust and there is a loss on one and capital gain on most of the others, then I think that it would be hard to argue that your intent was to avoid paying tax.

Had you sold shares on market for a gain, and then transferred shares at a loss into a trust (but retained beneficial ownership), perhaps your chance of it being deemed a wash would be higher.

What I find funny with this alert, is that in one of the examples the ATO basically tell you how to construct a wash sale they'd be comfortable with - i.e. sell shares, wait for a window until some sort of market news or signal flags that you are justified buying them back, and then buy back a different quantity than what you sold.

ps. I'm not an accountant.

 

[asdf]

Great question Alex. Was just thinking how ridiculously stupid and impractical this is. The whole Budget was up this alley. When will they stop picking on rich people whos moving Australia forward. They should just ship all the no hoper leeches off this country or better still bury them and save $30 billion in social security payments.

Back to your situation, one off transfer to trust will not be caught. As Deepmarine suggested you will have to buy back in to be considered. So you can either leave it a day or two to buy back in, buy different quantities. Ideally if you can buy it for a cheaper price, then the argument will be stronger that you were trading and picking levels rather than crystallising losses.

If you wanted to take it the next step further, you could sell a 1-2 month put option at the same time of your share sale. If you get exercised, you get your shares back at the same price plus option premium also. If you're worried the price might run, just buy an out the money call that will give you upside exposure too.

I'd like to see the ATO checks and audits pick that transaction up as a wash sale. The $60k a year customer service officers needs to understand the markets first. If they did, they won't be auditing your returns! But judging from Wickenby's high profile FAILURE, they'll probably spend another $100M on consultant fees just to claw back $10M in taxes. Morons who run our country, please stand aside.

 

[austini]

Hi Gang,

I was reading in the AFR on Wednesday (Tax Special Liftout) that a wash sale by an individual and the subsequent purchase by a Family Trust would not be allowed. However the same done with a SMSF would probably be okay as the dominant motive is to provide for retirement. Maybe this is just that Tax specialist's view (a Big 4 tax partner) but it would be interesting to hear what our Sommersoft accountant members think of this view.

In a few years time it is quite possible we might want to sell individual shares held by the Family Trust which may result in a loss and subsequently purchase them in the SMSF. I wonder if that is okay also?

Cheers - Gordon

 

[MattR]

I was looking at this for Mrs MattR the other day as she has some CG's and a particular stock that's down at present. I was thinking that if she sold the stock and then bought back in two weeks that would suffice, as they market could go anywhere in two weeks. I did the numbers and it just wasn't worth the hassle so didn't research further.

I think we hold a poll to get Alex to run a test case with the ATO.

As for the SMSF issue, I'm OK with that one.