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Take advantage of underperforming assets

Friday, December 07, 2018

Smart investors know that keeping abreast of your capital gains situation doesn't need to wait until the end of financial year frenzy. They keep an eye on their portfolio throughout the year – looking for opportunities to offset net capital gains along the way. It’s called Tax Loss Selling or Tax Harvesting.

What is Tax Loss Selling?

Tax loss selling or tax harvesting occurs when an investor sells an asset with a capital loss in order to offset the capital gains realised by the sale of other assets. It means any capital losses made by selling an underperforming asset are tax deductible and can be used to reduce tax liability.

What to Sell and When?

Choosing to sell assets to crystallise a capital loss (and deciding which assets are suitable for this type of sale) will depend on:

  • Your portfolio
  • Your potential gains and losses for the year, and
  • Your personal preferences

When considering which stocks may be worth tax loss selling, look for:

  • Small, illiquid stocks that have significantly underperformed during the year
  •  Stocks that are falling in price and are most likely to continue their downward trend which will create more intense selling and further falls
  • Any assets in your portfolio that you wouldn't buy at their current price

A Note of Caution

To make sure you don't run into trouble with the ATO, remember:

  • You must hold an asset for a while before selling at a loss.
  • You cannot sell a stock and then repurchase it in the short-term. You are required to wait at least 30 days. Known as a Wash Sale, this type of share trading can incur penalties.

The Benefits of Offsetting your Capital Gains Early

There are a few benefits to selling illiquid, underperforming stocks well before financial year-end:

  • You may reduce the amount of loss suffered by selling early
  • The frenzied actions of other sellers won't bias your decision-making
  • Taking losses early could prepare you for making gains on better investments later in the year
  • Selling loss makers provides an opportunity to reinvest in better options that are healthier for your portfolio and your bank balance.

A Platform for Smart Investments

PrimaryMarkets serves as a global independent unlisted securities and investment marketplace that enables sophisticated and/or wholesale investors to take part in secondary trading. We have investment opportunities located in most jurisdictions worldwide. Contact us to discuss your options for offloading underperforming assets.

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