How to pick the best time to sell

We are all meant to avoid “timing the market” but in reality, there are better and worse times to buy or sell shares, property and other assets.

And one of those “better” times is about to arrive, courtesy of the stage three tax cuts which will finally arrive on the Australian tax scales after June 30 this year.

The end and beginning of tax years always provoke some buying and selling with common strategies being to sell some loss-making assets before the end of the tax year to help to offset any capital gains and also to sell early in the new financial year so that you have a whole year before any capital gains tax will be payable.

Stage 3 tax cuts can slice capital gains tax bills

This year there is a new wrinkle to those strategies because the marginal tax rate for many workers is on the way down because of the stage 3 tax cuts, which makes taking a capital gain in the new financial year a little less painful.

Tax losses, however, will probably be more useful in the 2023-24 tax year because they are being deducted from a higher marginal tax rate.

As always, individual circumstances differ so it is worth having some idea of what your income level and marginal tax rate is likely to be in the two tax years to maximise any timing advantages.

Marginal tax rates apply to capital gains

Capital gains tax is effectively added to wages with the resulting marginal tax rate then applied in calculating how much CGT is payable.

That means for large assets such as property or a significant share sale, the person selling is likely to be on the top marginal tax rate, which is why the cut in the tax scales presents an idea opportunity to act.

Sales under a year get no discount

When an investment has been held for at least 12 months, the capital gains tax applies to half of the capital gain while the marginal tax rate would apply to the entire capital gain if it had been held for less than a year.

As always, tax should not be the reason for making a sale but it is certainly an important consideration, particularly if a timing difference of a couple of months would make a significant difference.

Another thing to remember is that capital losses can be carried forward to future financial years to reduce future capital gains but cannot be used to offset income tax liabilities.