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As 30 June nears, is it time to make the tough decisions on these laggards?


And just like that, another financial year passes by before you even know it. Where did the year go?

Well, to make the most of what’s left of this year, now is the perfect time to assess your capital gains tax position on shares and other assets purchased during this financial year. And yes, according to the ATO, “cryptocurrencies are taxed as a form of property and are subject to the same regulations relating to capital gains.”

With company shares, if the purchase was made more than 12 months ago, the ATO gives you a 50 per cent discount on your capital gains tax. This means, you only pay tax on 50 per cent of your earnings from the asset at your marginal tax rate. Otherwise, the entire capital gain is taxed.

The first step is to determine your winners (capital gain stocks) from your losers (capital loss stocks). For this article, we’ll be focusing on the ‘losers’. Those pithy little stocks you bought but can’t stand to sell. They started off in the green, then down they went. Down 5 per cent, then 15 per cent and now they’re knee deep in red it gives you anxiety every-time you look at them.

  • The reason we suggest selling now, is because a strategy called tax-loss selling takes place during the last two weeks of June. The strategy is used by investors to manage tax obligations, by reducing one’s net capital gains for the financial year by offsetting capital gains with losses realised throughout the financial year.

    In effect, the intent is to minimise tax owing from investing in shares. The second function is to use the small window of opportunity to clear the decks of unwanted clutter. And by that we mean, selling all the illiquid, deep in the red stocks.

    As a side note, ‘tax washing’ is illegal. That is; the quick sale and re-purchase of securities to minimise tax. For example, if you bought A2 Milk (ASX: A2M) shares this financial year, and were to sell all of your holdings due to the company’s underperformance (creating a taxable loss), you cannot repurchase the same amount at the start of the new tax year. It would be argued that the sale was not to reduce the position in A2M, but to crystallise a capital loss. Otherwise, the repurchase wouldn’t have occurred. This is tax washing.

    In the table below, I’ve listed the top 10 laggards of the ASX200 Index and the All Ordinaries Index.

    Recouping losses always requires a larger percentage gain than the loss itself. But the gap becomes larger after the losses push past 20 per cent. A stock that falls 25 per cent requires a 33 per cent gain to get back to its original position. A 50 per cent fall requires, a 100 per cent gain and 75 per cent fall requires a near 300 per cent tripling.

    So as a rule of thumb, a stock carrying a loss greater than 75 per cent, should be turfed. Why? Because a +300 per cent gain is required just to break even. The chances of this happening to a company that has fallen so far, is quite rare.

    Here are three stock that could be worth more as capital losses before 30 June

    A2 Milk (ASX: A2M) – Shares in the dairy company plummeted after Chinese trade war disruptions reduced earnings for the foreseeable future. Shares lost 67.64 per cent of their value falling from $18.45 to $6.01. It’s a massive fall, in such a short time for such a well-known brand. Many experts are even saying a rebound isn’t far off, given the Chinese have permitted couples to have up to three children. However, for A2 Milk to break even it needs a 185 per cent share price gain, an almost tripling in share price.

    Both Citi and Credit Suisse have a Sell recommendation. Citi says earnings are “materially different now compared to 2020, given Daigou disruption and lack of local China manufacturing. A recovery in Daigou to 50 per cent of FY20 would value a2 Milk at $6.54, but investment appeal is lower, Citi suggests, given no local production, reliance on a single product and lower market share.” Credit Suisse says “A2 China infant formula demand model already includes an increase in births for 2022, as catch up for family plans postponed during the pandemic. The Underperform rating and $5 target are unchanged.”

    AGL Energy (ASX: AGL) – In a world that is determined to transition all things carbon into green, AGL is simply on the wrong side of the fence. The business is under real pressure, not out of any wrongdoing, but because the entire industry is being phased out. Smaller margins, lower demand and exponential growth in renewable energy paints a dark cloud over AGL’s future. UBS agrees and has a Sell recommendation with a target price of $7.60. The broker says AGL will “continue to underperform, largely because of its inflexible generation assets that are over-exposed to lower average wholesale prices.”

    AMP – Long suffering shareholders have really been put through mill. There hasn’t been a single thing that has gone AMP’s way for the last decade. It’s just been one steep downhill ride which began shortly after the AXA acquisition. Ever since the Banking Royal Commission held in 2018, nothing has worked.

    AMP did manage the sale of its AMP Life division and AMP Capital arms but couldn’t stop a shareholder revolt at its annual general meeting narrowly avoiding a second strike on its remuneration report. Shares are down 33 per cent for the year. Ord Minnett says the Citi believes AMP’s demerger of AMP Capital Private Markets leaves AMP private markets to fend for itself. While in Ord Minnett’s view, there is likely to be some near-term loss in earnings, some upside is expected over time.

    Morgans questions whether “much of the business will be left by the time the demerger occurs in the first half of 2022 with rivals” picking off funds in the interim. While there is the possibility of ‘some’ recovery, we wouldn’t hold your breath. AMP is a serial disappointer.

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