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Trading losses tax implication

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IAM
Contributor
Hi Guys, can you offset your trading losses against your salary that you earn so you would get a tax return?
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15 REPLIES 15
klapka
Super Contributor
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SimonPB
Valued Contributor
but you can roll it into next year and off set against trading profit next year
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Yatagan
Frequent Contributor
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stores
Super Contributor
To do this Simon must you ring fence your trading loss or not.
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klapka
Super Contributor
Submit the recon from your broker showing the loss as part of your SARS return and they will ringfence and carry that forward to next year.
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stores
Super Contributor
Thanks Kapla...my problem is that, on SARS e-filing, have to chose between ring fencing or not, when you make a loss...Preston gave me advice on this privately about 3 years ago. My problem is that I do not understand what ring fencing means, and what the repurcussions are afterwards. Can you advise.
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Preston
Super Contributor
1)Assume Stores has a 9 to 5 job and he earns R300 000 per annum which is before tax. 2) Assume Stores entered the stock market and he sufferred a loss of R100 000. 3) Assume tax payable on point 1, is R120 000.
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Preston
Super Contributor
Discussion. 1. When Stores submit his tax return, he takes R300K and less R100k loss he suffered thus his taxable income is now R200K, instead of paying R120 k in taxes , stores now pays R80K in Tax (40%*R200K)..
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Preston
Super Contributor
****************************************************************** 2) The Reciever of Revenue will "Object" on the grounds that you cannot offset the R100K loss against the R300K you earn and will demand you pay R120K tax.
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Preston
Super Contributor
******************************************************************* 3) So stores, Pays the R120K tax and now the Reciever of Revenue is happy BUT STORES is not happy.......> so the Reciever will then tell Stores, that he must not be angry, because he will ringfence the R120K loss *********************************************************************
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Preston
Super Contributor
4) Scenario 1) which means in simply term, that if STORES makes a profit of R80K in the following tax year, stores will pay no tax cos R120K loss less R80K profit, it is still an overall loss.
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Preston
Super Contributor
********************************************************************* 5) Senario 2) But if Stores makes a profit of R190K in the year after making the R100K loss, then Stores will now pay tax on R90K (R190K-R100K) ********************************************************************** 6) It gets even more complicated with the 3 out of 5 year rule...but let us just ignore that for now
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Preston
Super Contributor
so in simply term, we should seperate all income earning activities from one another ie income from 9 to 5 job, and income earned from share trading and match those income earning activities with its relevant expenses and NOT PUT EVERYTHING TOGETHER. If you incur an loss in one of your activity then that loss will be offsetted against any profit that you might earn from that activity going forward.
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stores
Super Contributor
Thanks Preston...Appreciated..I do separate all my reading accounts separately...In 2012 I made a loss on one of them and the question "Should the loss incurred be excluded (ring fenced) for the calculations of the tax liability" was asked. I selected NO in 2012. I made a profit on this account in 2013. Does that mean that my loss in 2012 was not taken into account with respect to my profit I made in 2013? i.e. by selection No to the question have I disadvantaged myself.
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IAM
Contributor
Nice, thanks for the explanation Preston
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