[GNC] Capital Gains

[David Cousens]

GnuGord

You could use an Income sub-account, after all they are temporary equity
accounts anyway, but it is likely not the best way of doing it as your asset
may exist gaining (or losing) value over a number of years if you are not a
speculative investor but taxation only applies (CGT or income) in the year
of sale.

Recording it under Income then results in it being recorded as income
distributed over over a number of years when you really only receive ist
value as actual income when you sell the asset. When you finally do sell it
you are likely to have to pay tax (Income or CGT depending on the
circumstances and jurisdictional  legislation) on the amount you receive in
the year you sell it but you have recorded its losses and gains over a
number of years- to which of these years do you apply corrections. If you
put all the correction to the unrealized gain in the current year, it is
likely you will not report correctly for tax purposes in that tax year and
if it is appreciable and the tax man gets wind of it, it may open you up to
penalties for misreporting.

By recording it directly in equity, rather than income you achieve the
purpose of recording the ongoing changes to your net worth, you are less
likely to  misreport for any taxation purpose and you can correct it at the
time of sale with a single entry to zero out the unrealized gains/losses and
record the actual gains and losses in the current year.

Both can be made to work, but recording in unrealized gains/losses in equity
rather than in income is likely to be simpler longer term. Realized
gains/losses are of course always recorded under income. Dividends are taxed
as normal income and usually the proceeds of sale for stocks as capital
gains or losses but this can be jurisdictional dependent. Ultimately as long
as it is recorded in a reasonable manner with sufficient detail, your
accountant can sort it out if necessary, but of course he/she will charge
you for doing so.

For the record I have a masters in accounting, (but I am not a practising
accountant) and I live in Australia.

David Cousens.



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David Cousens
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