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SMSF Mistakes - Be careful of anything that could be viewed as a "wash sale"

Updated: Feb 9, 2022

"Wash sale" is a term used to describe the quick sale and purchase of the same, or a similar, asset. It is an American term that first appeared in the 1850s. Here in Australia the term wash sale does not have any precise meaning. However the ATO uses the term wash sale to describe the sale and purchase of the same, or substantially the same, asset within a short period of time of each other.


"Wash sales" are commonly done in self-managed super funds, where a particular investment is sold to create a tax loss, and then once the loss is crystallised, the investment is repurchased. The resulting sale allows the resulting capital loss or allowable deduction against a capital gain or assessable income already derived or expected to be derived.


Generally transactions carried out in such a manner are looked at unfavourably by the ATO, as this type of transaction may fall under the income tax anti-avoidance penalty laws. Tax ruling (TR2008/1) reveals how the ATO might treat this type of transaction under the income tax anti-avoidance penalty laws.


It is important to remember that the ATO is saying that only arrangements that create a tax loss could fall afoul of anti-avoidance rules, however if there are "demonstrable non-tax advantages", then the dominant purpose of a transaction may not be the loss created by the tax benefit. It is important to understand that there must be a demonstrable non-tax advantage.


As discussed in a recent post anti-avoidance is more concerned with substance rather than form. The substance of the scheme is what the taxpayer may achieve by carrying it out. However as always, it might be worthwhile speaking to a trust accountant, to understand how to best navigate this area of Part IVa, as penalties and fines may apply if the ATO finds you to be carrying on anti-avoidance.


If you have any questions, please feel free to reach out.






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