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Losing money on shares - tax deductible?

Newbie

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Hi,

 

This is what I have learned on how ESS works:

Tom is given 1,000 shares in his employer’s company under an ESS on 1 July 2015. The shares are provided at no cost to Tom, but are worth $4 each when he is given them (total market value of $4,000). If there is no risk that Tom will forfeit the shares, then he will pay income tax up-front (in the 2015-16 income year) on the discount provided on
those shares. In this case, the discount will be $4,000, equal to the market value of the shares when provided ($4,000) minus any amount paid by Tom ($0).

Capital Gains Tax
In all cases, Tom will be liable to pay capital gains tax when he sells the shares, on the difference between the sale
price and the market value of the shares at the time of the ESS taxing point.

My question is - what if the share price drops? Say the 1,000 shares were worth $4,000 at the time given to Tom and he paid income tax on $4000. But he then sold the shares for $2 each and only got $2,000 total. Will he be able to claim tax deduction? 

 

Thank you

1 ACCEPTED SOLUTION

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Most helpful response

Former Community Support

Replies 0

Hi @James1998

 

Losses related to shares are usually treated as capital gains tax events, unless you’re considered to be a professional share trader.

 

Capital losses on shares can only be used to reduce any capital gains on shares, so you can’t apply the loss to your ordinary income (for example, interest on savings accounts). Capital losses can be carried forward until you have a capital gain event in the future. You need to report your capital losses on your tax returns in subsequent years until such time as you use them.

 

Item 18 Capital Gains has a section to record your current year capital losses and carry forward capital losses.

 

Example calculation share loss, page 18, example 17.

 

Here are some similar threads Writing off share losses and Capital loss from selling shares.

 

I hope this assists

2 REPLIES 2

Megastar

Replies 0

Sale of ESS shares are always under the CGT rules. Capital losses can only be used to offset current/future capital gains.

 

The ESS discount can only be refunded if you have lost/forefeited the right to an ESS interest: https://www.ato.gov.au/General/Employee-share-schemes/Employees/ESS-and-your-tax/Forfeiture-or-loss-...

Most helpful response

Former Community Support

Replies 0

Hi @James1998

 

Losses related to shares are usually treated as capital gains tax events, unless you’re considered to be a professional share trader.

 

Capital losses on shares can only be used to reduce any capital gains on shares, so you can’t apply the loss to your ordinary income (for example, interest on savings accounts). Capital losses can be carried forward until you have a capital gain event in the future. You need to report your capital losses on your tax returns in subsequent years until such time as you use them.

 

Item 18 Capital Gains has a section to record your current year capital losses and carry forward capital losses.

 

Example calculation share loss, page 18, example 17.

 

Here are some similar threads Writing off share losses and Capital loss from selling shares.

 

I hope this assists