Ask Colin

Does taxation affect your investment decisions?

Yes and no.

In principle, I look at each investment independently of taxation. It is hard enough to manage investments without adding that burden. So, I buy and sell according to the trend and ignore taxation when making those decisions.

I have seen some people do some silly things over the years with regard to tax. I have seen people invest in schemes that gave them a huge tax deduction, but they made no income on the underlying investment and lost their capital as well. In some cases the ATO even came back and denied the tax deduction. This is a disaster.

I have also seen people let big capital gains get away from them to avoid the tax if they took their profits. It is a complicated picture, but in principle, tax is never 100%, so it pays to take a profit and pay tax rather than let the market expunge your profit. I often joke that I would love to have a $1 million tax bill next year - I must have made about $2 million to have to pay that tax!

On the other hand, there has been a change in capital gains taxation in Australia such that holding a stock over 12 months is much more attractive than short term trading. This has caused me to aim at the big trends that run 1 to five years, rather than short moves of only a few weeks to a few months. However, if the trend ends, I am out of it and pay the tax.