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Should you sell your Commonwealth Bank of Australia (CBA) shares before June 30?

The Commonwealth Bank of Australia (ASX: CBA) share price is down 8.5% in a month — many people may be considering selling for a tax loss.

What is tax loss selling?

Tax loss selling is the act of selling shares which have performed poorly in order to post a loss on an income tax return when June 30 rolls around.

It makes sense right: sell the shares, ‘incur’ the loss and buy them back again. 

Then, your taxable income is lower and you own the shares. 

Genius!

Woah, not so fast there, Buster.

The Australian Tax Office (ATO) is not silly. They know people don’t want to pay tax.

As Kerry Packer the late billionaire famously said to a Government inquiry:

“Of course, I am minimising my tax. And if anybody in this country isn’t minimising their tax, they need their head read.”

Unfortunately, selling CBA shares just to re-buy them might not fly with the ATO.

These types of scenarios are sometimes called ‘wash sales’. The ATO set the record straight in 2008. Basically, if the decision was made for no other reason than avoiding tax (read: tax avoidance), the ATO is likely to raise an eyebrow.

The ATO is rumoured to be cracking down on these ‘wash sales’ inside self-managed superannuation funds (SMSF), according to SMSF Adviser.

And as SMSF software business, Class Ltd (ASX: CL1), wrote in its March 2017 report, Commonwealth Bank of Australia shares was among the most popular inside self-run super.

Telstra Corporation Ltd (ASX: TLS) shares, which have fallen 20% in 12 months, may be another blue chip which investors consider selling. It is the most popular ASX share in SMSFs, with 52% of SMSFs holding shares in the telecommunications giant.

Foolish Takeaway

Tax is an important consideration for most Australian investors, especially those operating an SMSF. With franking credits and generous capital gains discounts available to individuals, as Kerry Packer would say, you would be crazy not to think about it. However, it’s also important to consider the rules associated with tax planning and be mindful that if you are a long-term investor, picking good businesses paying great dividends should be your first priority.

Do you want potentially tax-effective dividends in 2017? 

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia owns shares of Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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