looms as a potentially precarious one for investors – particularly those portfolios filled with small caps outside the SWhat is tax selling? It is when an individual investor sells an asset to realise a capital loss. This loss can then be used to reduce or offset any capital gains realised throughout the financial year, which reduces the overall tax liability.
The market looks set to close the 2021-22 financial year either down or, at best, flat. Scratch a little deeper and it’s far easier to find stocks trading closer to 12-month lows than those trading at 52-week highs. Since the highs of late last year, many paper profits have been eroded. In fact, about 70 per cent of SP/ASX 200 constituents are in the red from six months ago. So, rather than paying tax from continuing gains, investors will be faced with the choice of dipping into their wallets to pay off the amount or selling shares to release the capital needed to pay the Australian Taxation Office.
For some, this will not come as a surprise having already experienced the full force of tax selling among their holdings. Some may be wondering about buying opportunities.Right now, however, investors should be focused on making smart, tax-effective decisions – especially when June 30 is not far away and the broader economic and geopolitical climate suggests recovery for small caps is still some way off.
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