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Income you receive from investing in shares will generally be taxed at your marginal tax rate. Basically, if you buy shares for one price and sell them for another price then the difference between the two is your capital gain or loss. You pay tax on your capital gains. It forms part of your income tax and is not considered as a separate tax – though it's referred to as capital gains tax (CGT). If you make a capital loss, you can't claim it against income but you can use it to reduce a capital gain in the same income year. And if your capital losses exceed your capital gains in an income year, you can generally carry the loss forward and deduct it against capital gains in future years. There are also other tax implications of obtaining, owning and disposing of shares, those are following: 

Obtaining shares
You can obtain shares through:

  •  Buying them;
  • Inheriting them;
  • An employee share scheme;
  •  Bonus share schemes of companies in which you hold shares, etc.

Owning shares
When you own shares, there are tax implications from:

  •  Receiving dividends; 
  • Participating in a dividend reinvestment plan;
  • Participating in a bonus share scheme;
  • Receiving non-assessable payments, etc.

Disposing of shares
You can dispose of your shares in the following ways:

  •  Selling them;
  • Through mergers, takeovers and demergers;
  • Through share buy-backs;
  • The company goes into liquidation, etc.

The amount of tax you pay on your capital gains will depend on a number of things including how long you retain the shares, what your marginal rate of tax is and whether you have also made any capital losses. Your marginal tax rate, which is the portion of your income you pay in tax, is important because your capital gain will get treated in the same way as any other income on your tax return for that year. The length of time you hold your shares is relevant because individuals can usually discount a capital gain by 50%, meaning you may pay less tax, if you have held the asset for more than 12 months.  

You would make a capital loss on shares if you sold them for less than what you paid for them. But what’s important to note is that if you make a capital loss, you can use it to reduce a capital gain in the same income year. What’s more, if your capital losses are greater than your capital gains or if you make a capital loss in a financial year in which you don’t make a capital gain, you generally can carry the loss forward and deduct it against your capital gains in future years.

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