Planning to sell some ASX shares before tax time? Here's what you need to know

It's that time of the year. We run you through some of the implications of selling shares.

a small boy dressed in a bow tie and britches looks up from a pile of books with a book laid in front of him on a desk and an abacus on the other side, as though he is an accountant scouring books of figures.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • There are only a few weeks left of FY23
  • An ASX share sale could result in a gain or a loss
  • Investors should know about the 50% capital gains discount and capital losses

It's nearly the end of FY23. It's time for investors who are thinking about selling their ASX shares to understand what might happen if they do.

Buying shares is a pretty easy process, but selling can come with some knock-on taxation implications. So it's important to weigh up whether it's the right decision to sell.

The Australian Taxation Office (ATO) has an array of data-matching abilities these days. If you sell an investment, the ATO will know and expect the Aussie taxpayer to report as such in the capital gain segment (schedule) of their tax return.

Let's look at what might happen in basic terms for an individual, assuming a sale does take place. Bear in mind too that there are many elements to capital gains tax, so a tax accountant can help here.

Capital gain or loss?

Before we get into the ins and outs, if an investor is sitting on a big unrealised gain and thinking about selling their ASX shares, it could be worth considering delaying the sale until early July. That will also delay having to pay tax on the sale for another 12 months as July 2023 will be part of the FY24 tax year. A sale in June 2023 needs to be included in the FY23 tax return.

When a sale is made, taxpayers (or the tax accountant) need to figure out whether the sale led to a capital gain or capital loss.

We compare the sale proceeds to the cost base. The cost base includes the actual cost of the shares, the brokerage to buy the shares, and the brokerage to sell the shares. Say we bought $1,000 of ASX shares and paid $10 of brokerage, and sold it for $2,000 after 13 months, with $10 of brokerage selling costs. That's a cost base of $1,020 ($1,000+$10+$10) and a capital gain of $980.

If the cost base was more than the sale proceeds, it would result in a capital loss. Capital losses can be used to offset other share sales that have made capital gains.

But keep in mind that taxpayers shouldn't undertake wash selling. That's where investors sell their ASX shares at a loss, just to harvest the capital losses and then re-purchase the same share investment. The ATO doesn't like that.

What happens when we make a capital gain on ASX shares?

The taxpayer needs to work out what the net capital gain on their sale is.

We've already discussed comparing proceeds to the cost base. The next step is to look at whether there are capital losses to utilise (including capital losses brought forward from previous tax years). Any capital gains are offset against losses.

After utilising losses, if there are any gains remaining on sales of ASX shares that had been held for over 12 months, then the ATO allows investors to apply a 50% CGT [capital gains tax] discount.

In my example above where a $980 capital gain was made after 13 months, the gain is halved to $490.

The $490 — or whatever the capital gain figure is for all applicable gains and losses — is then added to the taxable income for the taxpayer in that year's tax return.

What happens to losses that aren't used that year?

Typically, when the end result of doing tax return calculation is a net loss, those losses can be carried forward to future tax years to offset future capital gains. It's worth noting the ATO says there "is no time limit on how long you can carry forward a net capital loss".

That said, capital losses cannot be offset against 'normal' income like wages or dividends.

Foolish takeaway

If all that sounds a bit too complicated, don't worry. That's exactly what personal tax accountants deal with all day. It doesn't need to be tricky, as online brokers provide lots of documentation to help with all the information required.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Tax

Man holding a calculator with Australian dollar notes, symbolising dividends.

How is passive income taxed in Australia?

When it comes to passive income, the ATO is very clear.

Read more »

A man sits at his home desk calculating tax on a calculator.
Dividend Investing

Tax-busters: 5 fully-franked ASX dividend shares I'd buy for FY24

Fully-franked dividends can give you income while helping you pay less tax.

Read more »

a young boy dressed in a business suit and wearing thick black glasses peers straight ahead while sitting at a heavy wooden desk with an old-fashioned calculator and adding machine while holding a pen over a large ledger book.
Share Market News

How can I maximise my ASX franking credits in FY24?

Let's look at the benefits of franking credits and which ASX shares have big, growing yields.

Read more »

four one hundred dollar bills hang on a washing line with old-fashioned wooden pegs, denoting money laundering.

Inadvertently 'wash selling' your ASX shares this tax time? Here's what could happen to you

Many investors fall into this common trap, and it will gt you some heat from the ATO.

Read more »

A senior couple discusses a share trade they are making on a laptop computer

5 things ASX investors need to know for tax time

Many Australians skip over these issues, but they could easily burn you later.

Read more »

A man sits at his home desk calculating tax on a calculator.

Own ASX shares? Here are 3 investing tax deductions you may not be aware of

Aussie taxpayers, start getting your invoices together. It’s tax time!

Read more »

A young man sits at his desk with a laptop and documents with a gas heater visible behind him as though he is considering the information in front of him. about the BHP share price

ASX investors need to avoid this MASSIVE mistake in June that ATO will chase you for

It starts off as innocent tax-loss selling, but it can easily turn into something far more sinister that the tax…

Read more »

a close up of a woman's face looks skywards as she is showered in a sea of graphic symbols of gold and silver coins bearing the bitcoin logo.

5 warnings from the ATO for crypto investors

Are you reporting cryptocurrencies the correct way on your 2022 tax return? Here are some tips from the tax man.

Read more »