Shares CGT - 4 weeks rule and Share Classes

Kinsailor

I am preparing tax returns and I am trying to address the requirements of the 4 week rule on share disposals / acquisitions under Irish Revenue rules:

ie : Where shares are sold within four weeks of acquisition the shares sold are identified with the shares acquired within that period. Furthermore, where a loss accrues on the disposal of shares and shares of the same class are acquired within a four week period, the loss is not available for offset against any other gains arising and instead is only available for set off against any gain that might arise on the subsequent disposal of the shares so acquired in the four week period - this provision does not apply where there is a gain on the disposal.

I have been using a US based share trading company to trade shares over a number of years. I was unaware of the 4 week rule up to recently and would liberally buy and sell shares with multiple transactions over the period . I am now trying to deal with the complexity of calculating my tax liability for Irish revenue - which is not going to be a straightforward Sale vs Cost assessment for reach transaction given the 4 week rule.

In the US they apply a similar rule , with respect to repurchase of sales following a previous loss on sale, to the Irish Revenue restriction on share repurchase (called the 4 weeks rule). The term under the US code is called the 'Wash Rule' and is described as follows:

Your anticipated tax loss (from a sale) is disallowed if, within the period beginning 30 days before the date of the loss sale and ending 30 days after that date, you acquire "substantially identical" stocks or securities.

As I read this it seems to be a very similar rule to that in the Irish Code (except for 30days vs 28days) ....if that is the case it would be very convenient for me as the US shares trading company automatically calculates any 'wash' related disallowances for me in their annual statement which will greatly assist me doing a tax return here : Would anyone have an opinion on this? - OR will I have to manually go back and do a 4 week rule check on each transaction

Finally the Irish Revenue rules describe the repurchase as being of shares of the same 'class' : Does anybody know what 'class' in this context means : does it mean the same company/entity?

Thanks for any advice on this topic...

Shane732

Kinsailor wrote: »

I am preparing tax returns and I am trying to address the requirements of the 4 week rule on share disposals / acquisitions under Irish Revenue rules:

ie : Where shares are sold within four weeks of acquisition the shares sold are identified with the shares acquired within that period. Furthermore, where a loss accrues on the disposal of shares and shares of the same class are acquired within a four week period, the loss is not available for offset against any other gains arising and instead is only available for set off against any gain that might arise on the subsequent disposal of the shares so acquired in the four week period - this provision does not apply where there is a gain on the disposal.

I have been using a US based share trading company to trade shares over a number of years. I was unaware of the 4 week rule up to recently and would liberally buy and sell shares with multiple transactions over the period . I am now trying to deal with the complexity of calculating my tax liability for Irish revenue - which is not going to be a straightforward Sale vs Cost assessment for reach transaction given the 4 week rule.

In the US they apply a similar rule , with respect to repurchase of sales following a previous loss on sale, to the Irish Revenue restriction on share repurchase (called the 4 weeks rule). The term under the US code is called the 'Wash Rule' and is described as follows:

Your anticipated tax loss (from a sale) is disallowed if, within the period beginning 30 days before the date of the loss sale and ending 30 days after that date, you acquire "substantially identical" stocks or securities.

As I read this it seems to be a very similar rule to that in the Irish Code (except for 30days vs 28days) ....if that is the case it would be very convenient for me as the US shares trading company automatically calculates any 'wash' related disallowances for me in their annual statement which will greatly assist me doing a tax return here : Would anyone have an opinion on this? - OR will I have to manually go back and do a 4 week rule check on each transaction

Finally the Irish Revenue rules describe the repurchase as being of shares of the same 'class' : Does anybody know what 'class' in this context means : does it mean the same company/entity?

Thanks for any advice on this topic...

What's your actual question?

Kinsailor

Thank you for the clarifying question:
My questions are:

1) Is the Irish Revenue 28 Day rule on share disposals equivalent to the US Share 'Wash' Rule ?
and
2) What does the Irish Revenue mean in the 28 Day rule when they talk about the same 'CLASS' of share ?

Thank You

Itchianus

The same class of share is not a very ambigious thing, and the term "substantially identical" hits the nail on the head.

Lots of companies have several different share classes quoted on the same exchange - there may be Ordinary shares, A Ordinary shares, B Ordinary shares, Preference shares with varying coupon rates... the B&B rules refer to you selling a particular type of share in a particular company and then ending up holding what are essentially the same shares again. Don't make it more complicated than it needs to be!

Kinsailor

Thank you for the clear advice

willowthewisp

Hi,
I am very new to all this and do not have a great understanding of the Shares disposal system, and most importantly, tax liability.
Basically I am trying to interpret this B&B rule and wondering if;
-I Sell Shares on for example the 15th December 2014.
-Then buy the similar shares (same company) on the same day.

Does this allow me to increase the limit of my Capital Gains Tax allowance for the shares sold? (i.e. reduce the amount of CGT I may have to pay on any profit made from the initial sale?).

dogsears

willowthewisp wrote: »

Hi,
I am very new to all this and do not have a great understanding of the Shares disposal system, and most importantly, tax liability.
Basically I am trying to interpret this B&B rule and wondering if;
-I Sell Shares on for example the 15th December 2014.
-Then buy the similar shares (same company) on the same day.

Does this allow me to increase the limit of my Capital Gains Tax allowance for the shares sold? (i.e. reduce the amount of CGT I may have to pay on any profit made from the initial sale?).

The rules referred to earlier in the thread relating to Bed and Breakfasting are really intended to prevent people getting CGT loss relief in respect of shares they effectively continue to own.

Seems here (correct me if I'm wrong) you expect to make a profit on selling shares before buying them back and there is nothing in those rules to stop you doing that.

You would in effect get a step up in the cost base of those shares but of course you may have CGT to pay as well.

TSQ

dogsears wrote: »

The rules referred to earlier in the thread relating to Bed and Breakfasting are really intended to prevent people getting CGT loss relief in respect of shares they effectively continue to own.
.

Realise this is a very old thread, but I have a question relating to writing off losses on shares. I have shares in INMS on which I am going to make a loss. I have shares in another company, lets call it Company B, on which I will make a profit. I want to sell both lots of shares and offset the profit and loss on the sales to reduce CGT. Now here is where it gets complicated: the shares in Company B I will be selling I believe are currently undervalued, so I would like to buy Company B shares again very soon after selling. Will this affect my ability to claim for the loss on my INMS shares.?

dogsears

TSQ wrote: »

Realise this is a very old thread, but I have a question relating to writing off losses on shares. I have shares in INMS on which I am going to make a loss. I have shares in another company, lets call it Company B, on which I will make a profit. I want to sell both lots of shares and offset the profit and loss on the sales to reduce CGT. Now here is where it gets complicated: the shares in Company B I will be selling I believe are currently undervalued, so I would like to buy Company B shares again very soon after selling. Will this affect my ability to claim for the loss on my INMS shares.?

Not sure I understand why you'd sell them if you think they're undervalued. Capital losses can be carried forward and set off against gains in later years.

Doing what you are suggesting does not reduce CGT - there isn't any CGT for you until you sell the Co B shares.

Maybe I've misunderstood what you mean?

TSQ

dogsears wrote: »

Not sure I understand why you'd sell them if you think they're undervalued. Capital losses can be carried forward and set off against gains in later years.

Doing what you are suggesting does not reduce CGT - there isn't any CGT for you until you sell the Co B shares.

Maybe I've misunderstood what you mean?

I am in profit on Co. B shares and will have a capital gain if I sell, and a capital loss if I sell INMS. Unfortunately the board of Co. B are a bunch of morons and due to action they are taking I believe the shares will drop further in the very short term. If this happens I would re-purchase Co. B shares, as I think the business is sound and will quite possibly become a takeover target. I am hoping to buy Company B shares back at a discount shortly after selling them. So my question is: I will be making a loss on INMS, not on Company B, and I will (possibly) buy back in to Company B within 4 weeks of selling. Will the 28 day rule apply if setting off my loss on INMS agains gains on sales of Company B if I repurchase Company B shares after selling? or would it only apply if I were to repurchase shares in INMS (the loss-making company)?
Hope I have explained this clearly.. bit complicated.

dogsears

TSQ wrote: »

I am in profit on Co. B shares and will have a capital gain if I sell, and a capital loss if I sell INMS. Unfortunately the board of Co. B are a bunch of morons and due to action they are taking I believe the shares will drop further in the very short term. If this happens I would re-purchase Co. B shares, as I think the business is sound and will quite possibly become a takeover target. I am hoping to buy Company B shares back at a discount shortly after selling them. So my question is: I will be making a loss on INMS, not on Company B, and I will (possibly) buy back in to Company B within 4 weeks of selling. Will the 28 day rule apply if setting off my loss on INMS agains gains on sales of Company B if I repurchase Company B shares after selling? or would it only apply if I were to repurchase shares in INMS (the loss-making company)?
Hope I have explained this clearly.. bit complicated.

OK, I see now. You can do what you're saying, the rule applies where shares on which a loss arose are repurchased, which isn't what you are proposing.