Day Trading & CGT

pioneerpro wrote: »

Ah i'm not picking, and I stress this, you're definitely in the top 1% here in terms of balanced and neutral assessments and tone. Just that framing it as a 'hobby' or a 'casual' only helps normalise the sad reality of Ireland vs most of the developed world who can manage their pension funds and engage in things like FIRE by building wealth through investment.

Here we can't even depend on compounding interest from basic financial instruments like ETFs due to deemed disposal rules. Managing wealth and hedging against the future should be a basic part of financial literacy. Here it's subject to utterly draconian barriers to entry that have denoted property as the only acceptable investment and have ended up, in part, contributing to a major housing crisis.



It's to do with this statement:



Which goes a long way to highlighting the inequality, but misses the salient point imo, which is touched on here[



If you combine the CGT and the ISA, you realise that the composite tax free stock speculative gain allowance in the UK is actually higher than the Irish median net income. From that point onwards, any comparison between the two jurisdictions is null and void and serves no purpose, as that single fact nullifies the 'ordinary income' writeoff argument completely imo.



And sad as it is to say, highlighting the inequality and proposing domiciling in a different jurisdiction for people who wouldn't even be considered 'high earners' has to be part of that conversation in 2021. There's a reason why the startup culture is so poor here, why basic perks are subject to BIK, and why the housing market is overheated - and its part of the social acceptance of this state of affairs, even by the relatively financially literate.

And I absolutely with all of your points. Especially with regard to FIRE and ETFs.

It's almost as if the state is, in some respects, trying to discourage people from thinking long term and planning for their future.

With regards to ETFs, I recently listened to an episode of a Podcast called the Irish FIRE Podcast in which ETFs were addressed. The presenter had two guests on from a a Group called Irish Savers Action Group. They outlined how they were trying to liaise with politicians to encourage long term personal financial planning. They have liaised with various political parties on the matter. With regard to ETFs they basically got told (not in so many words) that addressing the problem with ETFs would basically be politically unpalatable. It wouldn't play well with the voters. Even though it would be immeasurably beneficial for the majority of the public, the squeezed middle as it were, politicians won't touch it as it would have bad optics. In a way this is an understandable stance from a government party. Much of the Irish public is financially illiterate.

No matter how much of a benefit a change to the tax regime in relation to ETFs would be to the general public, can you imagine how the likes of far left politicians such as Paul Murphy, Brid Smith et al would actually distort reality on this matter?

I went off on a bit of a tangent/rant there, but I think it feeds into what you've been saying in relation to how we treat good personal financial planning in this country, and goes a bit towards explaining why we find it so difficulty to make any headway on these issues. Another example would be SF vilifying the government for trying to increase the pension age in Ireland, after they doing the exact same in the North - the definition of irony.

A big problem in this country is begrudgery - those who are reckless and do not plan for their future will begrudge and try to take from those that do. One of my biggest fears is much of my private pension being taken from me to give to those who weren't bothered planning for their future, or the PRSI pension becoming a means-tested allowance after 40 years of me contributing to it.

But back on point, I compare Ireland with the UK, as they are our closest neighbour. They are comparable in many ways, and by comparing the two, I think it highlights how unfair and out of step of tax system is in Ireland.

Re: The FIRE movement - I'm contributing as aggressively as I can to my pension (one thing that's very tax efficient here) and fully intend on retiring by 55. Contributing to a pension is doubly satisfactory - it reduces tax liability, and you are providing for your future,

pioneerpro wrote: »

Yeah I've been following your man on reddit from the very start. Fair play to him, and the /r/irishpersonalfinance/ is great albeit wildly depressing.



I have no illusion regarding a pension being available for me regardless of contributions. Half my generation are in UAE, Canada, or Australia and aren't paying stamps. They gutted the pension reserve fund already, and UBI is probably going to become a reality in the 1st world in the next 20 years. We're doing it already re: housing for inter-generational social welfare dependents, all at the expense of the squeezed middle.

Is that your way of saying our pensions will be safe? Or we'll just all be equally screwed?

In the greatest bull market since the dot.com boom, my privately managed pension (and obligatory 4.5% of my gross) achieved a return of about 3% when everything was accounted for.

It is a scam, plain and simple. Fire and forget investing in the S&P returned 31.5% and 18.4% the last two years running. I'm not going quietly into that dark night anymore, and I need to make up for the loss of earnings from two recessions in my adult working life so far, and the incredible capital flight that resulted in the hyper-appreciation of property.

3 % - That seems very poor. Actively managed? I achieved 7% last year, albeit in a level 5 fund. I've actually recently split my contributions over more funds, such that, 60% of my contributions are in level 6 and 7. Hoping for solid returns - I'm still (relatively young).

The way I look at it - even if the funds underperform a little, I'm still up in any given year given the tax advantages.

Do you mind me asking which company administer your fund? I'm with Irish life.

Rothmans wrote: »

Is that your way of saying our pensions will be safe? Or we'll just all be equally screwed?

The current pension liabilities - i.e. the people who are currently claiming - were no where remotely near funded based on the contributions made in their working life. In particular areas of public services it's almost a 4:1 deficit. The current 18-40 generation are basically shouldering that entire burden via tax take, whilst getting screwed re:defined benefit/defined contribution changes to pension schemes.

https://www.irishtimes.com/business/financial-services/public-sector-pensions-worth-millions-new-figures-show-1.3143604

Add to this the utterly macabre charade of large tracts of council housing being sold back for pennies on the euro during the 80s, and NIMBYism and regressive housing policies throughout the last 30 years and we have a generation who are both accelerating capital flight to the generations that came before them as well as shouldering almost the entire burden of their social welfare and medical expenses!

Indeed, we now have the situation where the sort of artisan cottages and public/private partnership houses built to lift us out of extreme poverty in the first half of the 20th century are now pushing 10-15 times the median income... and its to do with property being culturally seen as the *only* investment vehicle suitable for the common man; a position tacitly reinforced by our taxation regime and acceptance thereof.

With the historic propensity for the government to just help themselves to pension related funds during times of mismanagement/recession, I simply can't see anything other than the overall 'socialisation' of this and a societal penalisation of anyone who strived to generate any sort of wealth that doesn't involve property or inter-generational hand downs.

3 % - That seems very poor...Do you mind me asking which company administer your fund? I'm with Irish life.

Mercer. And that was my ballpark after fees and whatever else were taken IIRC. Must dig out the last mail they sent.

pioneerpro wrote: »

A civil servant won't give you tax advice in this context and possibly open themselves up to liability. I'd say registered financial advisor or you're pissing in the wind. I've taken the 4 week rule to heart, for better or worse, and just acknowledged Ireland doesn't want you to build wealth like other countries (€1,270 CGT threshold? Jokable). You've presumably seen this bloody article recently calling for a speculation tax. Sickening.

https://www.thejournal.ie/readme/column-gamestop-financial-transactions-tax-victor-duggan-5346346-Feb2021/

I've actually gone to 2 and they couldn't answer specifically. The real experts in the area might only deal with the big corporations to be honest.

This is ridiculous. It's not in the spirit of tax law to have to pay tax on a profit on an event where a loss on an equivalent event can't be offset. I'm querying it directly with them and will continue to probe but there are other avenues too if I get nowhere with this.

If they have problems with Short term trading and CGT then they need to state explicitly that it is trading, dealing and liable to Income Tax instead and losses are allowable here. But they won't even say this because it's shares.

I wonder if there is any individual out there doing this and submitting income tax returns vs. CGT where Revenue are happy with this. Does anybody know?

That document you attached - it doesn't tie back to the actual wording in the Tax Act S 581
the Act states that losses are only limited where the same shares are repurchased within 4 weeks of realising the loss and can only be offset against any gain on those same shares.

But if I don't repurchase (say Share A)?, where in the Act does it say I can't offset the loss on Share A (a same day buy and sell for example) against another gain separate from these shares (gains on dealing in Share ? I can only see that it says I can't offset A against B on their website - no where else.

Even the document above you attached doesn't talk about this restriction. Although I think they've also misinterpreted the act for this document.

I haven't really looked into anything other than simple share dealing but I would have thought ETF is deemed a "security" and treated in the same way as a share. But as I say I haven't looked into ETF at all.

In terms of the 4 week rule (& repurchasing aspect) - if I made a loss I just wouldn't rebuy the same thing until after 4 weeks of date incurring that loss. The rule is stupid here too (given it's not fit for purpose if people are just trading honestly instead of trying to benefit at year end from the 1270 exemption buy realising losses and rebuying) but at least it is in line with the act.

I'm happy to be forced into the Income Tax regime if only Revenue would confirm this for me and if I can offset short term losses against gains.

Buy they are saying because it is shares it is CGT. I suspect this could be open to discussion so I'll be re-querying this with them again.

In any case the more queries Revenue get in writing the better as it will show there are more and more people doing this.....

I'm still waiting to hear back from Revenue. I rang numerous times and was redirected and/or was cut off.

Was there any word back on getting an article in the IT?

AlkalineAcid wrote: »

It seems unreasonable that you cannot offset losses against gains unless it is exactly like the American wash sale rule in which the losses adjust your cost basis if you buy the stock again within a month.

Any news, Crimson_Ghost?

It's true, you can't. You need to wait 30 days.

The 30 day rule is a 28 day rule in Ireland as they mention weeks not days - https://www.revenue.ie/en/gains-gifts-and-inheritance/transfering-an-asset/selling-or-disposing-of-shares.aspx

It only applies really to selling and rebuying to show a loss. The rules don't have anything to stop someone selling at a gain, then rebuying again afterwards as they still owe on the gain, excluding the CGT allowance. Doing this is common enough in the US, to the point where there are entire companies based around helping you use the CGT allowance as it is much higher over there.

LawBoy2018 wrote: »

It's true, you can't. You need to wait 30 days.

Thanks. Do you have a source for the tax law?

AlkalineAcid wrote: »

So if I buy 100 shares of AAPL on Monday for $100 and sell for $98 on Tuesday, then buy 100 shares of MSFT for $100 on Wednesday and sell for $103 on Thursday, do I owe taxes on $300 gains at end of year because I can’t offset my AAPL loss within 28 days of purchase? For simplicity in this example I never trade AAPL or MSFT again after this.

Can I offset my $200 loss on AAPL to show only $100 gains from my $300 MSFT profit?

In that case you likely can't offset the loss as the two stocks are likely off the same class. Although since the Revenue example only mentions a single share, you could probably argue that you can offset the loss.
In the real world, if you were actually trading that close together, and often, Revenue would likely determine the stock trading was a trade and a whole set of other rules start to apply.

My example was based around how people sell then rebuy the same share to raise their cost basis.
E.g. buy 100 shares @ 100. End of the year sell 100 shares @ 110, then rebuy. You declare the 1000 gain which falls under the CGT limit and pay no tax.

Hey guys, stumbled on this thread couple of days ago looking for answers on wash sale rule and I'm happy to say this is one of the best sources of info on Irish taxes I've seen to date! Props!

Particular shoutout and thanks to @inisfree0504 for, first of educating me that we can actually read the full tax act legislation online and then more specifically pointing out the relevant part on wash sale. Also to @Crimson_Ghost for likewise confirm and pointing out the discrepancy between legislation and revenue website.

What I will add is another wrinkle I don't recall anyone mentioning here and that's the actual revenue manual on the 4 week rule (wash sale): https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-04-03.pdf

If yous read that carefully, you will see that, while worded slightly differently, the actual revenue manual agrees with the tax act legislation in that a wash sale rule situation only arrises if the shares are reacquired.

This means that only the example on the revenue website is incorrect and inconsistent with everything else!

To sum it up this is how wash sale works, just like in any other country:

e.g. 1: no reacquisition.

1. Buy 5 shares of stock A
2. Sell 5 shares stock A in less than 4 weeks for a loss. That loss can be used against any other future gain.

e.g. 2: reacquisition.

1. Buy 5 shares of stock A
2. Sell 5 shares stock A in less than 4 weeks for a loss.
3. Buy back (reacquire) 5 shares of stock A within 4 weeks of the disposal. That loss cannot be used against any other gain, except the gain on the reacquired shares.

e.g. 3: partial reacquisition.

1. Buy 5 shares of stock A
2. Sell 5 shares stock A in less than 4 weeks for a loss.
3. Buy back (reacquire) only 3 shares of stock A within 4 weeks of the disposal. That loss on 3 shares cannot be used against any other gain, except the gain on the 3 reacquired shares. The loss on the other 2 shares which were not reacquired can be used against any other gain, just like e.g. 1

So to put it in lay mans terms that anyone reading this thread in the future could understand - your losses never "disappear", wash sale or not. They either get used up by the reacquired shares or they get used up by other gains if no shares were reacquired. This is how every other country does it and this is how Ireland does it, in its legislation, in its revenue manual.

So the example on the revenue website, which to quote again https://www.revenue.ie/en/gains-gifts-and-inheritance/transfering-an-asset/selling-or-disposing-of-shares.aspx

is incorrect, Jane can set her loss against any other gain she may make. Why? Because neither legislation, nor actual revenue manual prohibits it! So please spread the word and put pressure on revenue to fix the egregiously misleading example on their website. Because it only benefits revenue. There's no issue for revenue if you don't claim losses and pay more tax...

Meanwhile I'm especially disappointed to learn of the quality of accountants that we seem to have in Ireland. Here's an article which incorrectly states wash sale rule and that in example 2 the loss is "gone forever" and can't be used against other gain, essentially parroting the incorrect example on revenue website https://irishfinancial.ie/the-wash-sale-4-week-rule-ireland-everything-you-need-to-know/

It was written by an accountant! https://irishfinancial.ie/about/

He also has a youtube channel where he's spreading the same miss-information on wash sale rule https://www.youtube.com/watch?v=xj_5GRxeX-k&ab_channel=WalterDunphy

The sad part is that he's presenting himself as an accountant who's suppose to understand investments - yet he makes this massive error.

Unfortunately, I've seen a few of his videos and he makes errors often...

Now I do appreciate his efforts to bring general financial education to the Irish masses, something sorely needed, but at the same time I would not trust him to do my taxes haha.

I'm actually not saying he's exception, oh no, he's the norm. The general point i'm making, is that this isn't a unique incidence, I've heard people talk to different accountants about some issue and get different answers and I've heard people talk to different revenue personal and get different answers on some issue. All the accountants I've talked to, none of them even know about the deemed disposal of ETFs rule that Ireland has...

So the sad truth, when it comes to investments: You cannot trust accountants. You cannot trust revenue personnel. The only person you can trust is yourself and your own reading of Tax Act legislation. I'd say revenue manuals are ok too, but if anything seems suspicious, suggest to go level deeper (Tax Act legislation) rather than higher (revenue website), because as we learned, only source of truth is the legislation.

Thanks for reading.

But you said that you will be holding the ETFs long term, rather than trading them regularly. For that reason I would imagine they would be subject to the deemed disposal rules.