Understanding: Wash Sale

A wash sale occurs when an investor sells an asset — such as shares or cryptocurrency to intentionally create a capital loss to offset capital gains made during the financial year, and then repurchases the same or a substantially similar asset shortly after. The primary purpose of this arrangement is often to reduce tax.

The ATO may deny the capital loss if the transaction is carried out mainly to obtain a tax benefit, especially where there is no genuine commercial purpose behind the sale. It is important that all transactions, including any repurchases, are still provided to us so we can review the circumstances and ensure the correct capital gains tax treatment is applied.

The ATO has issued strong warnings that taxpayers engaging in wash sales may face swift compliance action, and additional tax, interest, and penalties may apply.

Resources:

Wash sales: The ATO is cleaning up dirty laundry

Disclaimer: The information provided in this article is for general guidance only and does not constitute financial or tax advice. Your personal circumstances may differ, and the correct treatment can vary from case to case. Please speak with your registered tax agent or accountant for advice tailored to your situation.