Long term share market investments via superfund - help me

[ottg]

Want to bump this old threat to get comments from those tax experts/people in the known on the forum on my thoughts below.

The problem statement: Your portfolio of individual stocks start running out of steam - what to do?

This is based on this threat: 

 

Two things to consider: When do you need to prune your portfolio when the markets run out of steam and it is depends on tax payable due to capital gains or losses.

-If you keep a stock longer than 12 months then CGT is reduced by 50% based on your personal tax rate if the shares are in your name

-If you trade in a company name you pay 30% company tax and no reduction.

-If the stocks are in your Super then CGT is at 15%

http://www.nab.com.au/personal/learn/managing-your-debts/capital-gains-tax

In this case lets assume the stock are in your own name (assume personal tax at 37%) & neglect all brokerage costs (as it will be the same in all cases) to keep it simple. The 12-months period usually doesn't coincide with the volatility of market cycles - so what to do?

Case a: Never sell

You might just as well invest in a Index fund and enjoy your 6-8% growth in an average good year

 

Case b: Once a stock loose 10% of its peak value then sell

Assume 5000 shares at $1.20 each cost $6000. It peaks at $1.70 and then dropped -10%.

Profits after CGT = 610; profits = $1039 thus gain is 17.3%

 

Case c: Wait 12 months and sell. Assume the stock lost 20% of its peak value before selling

Without discount assume 5000 shares at $1.20 each cost $6000. It peaks at $1.70 and then dropped -20%.

Profits after CGT = $296; and profit = 504 thus gain is 8%

But because of 50% discount rule the CGT = 148; profit = $652 thus gain is 10.8%

 

Interesting to know that if you have done this in your SMSF Super the gain will be 11.3%

 

The lesson is to lock-in the profits and pay the CGT once you are confident the market is out of steam. This provides you with cash for the next cycle.