Roche & Cie

Taxation of capital gains: new rules specified

05 Apr 2016

Since 2013, the capital gains realized on the sale of shares and the shares are subject to progressive rates of income tax instead of being taxed at a flat rate.

To encourage savers to keep their shares long, the amount of the chargeable gain is reduced by an allowance for holding period. This allowance amounts to understate the taxable gain of 50% when the securities are sold between 2 and 8 years after acquisition and 65% where the sale takes place 8 years after (an “enhanced” reduction up to 85% s’ apply to certain transfers).

To calculate the taxable gain under a year, the individual may reduce the amount of gains, losses realized during the year and losses “in contango” the last ten years.

But the tax authorities considered until now the abatement for holding period should also apply to the losses, which had the effect of decreasing the amount due on capital gains and therefore increase the base taxable.

Non-taxable losses

The State Council had censored on 12 November 2015 this view and asked the tax authorities to review its copy. What she did in a statement published March 4 in which it states that “the capital loss incurred during a year or a previous year is deducted from taxable capital gains deductions before application, if any, of despondency. ” Clearly, the reduction does not apply to capital losses.

Now, individuals will therefore deduct the losses of their costs if the result is positive then apply that amount abatement for holding period. This is the amount after “shot” to be taxed at the income tax.

Conversely, if the losses exceed the gain, the loss is not taxable. She even carried over possible capital gains over the next decade.

Possibility to charge or not its losses

Drawing the consequences of the decision of the State Council, the administration also indicates that the taxpayer may deduct the loss on one or more taxable gains of his choice. Clearly, the IRS offers taxpayer not immediately attribute a loss.

“Taxpayers have an interest in charges their first losses on the capital gains that do not benefit abatement, which is the case when the securities were purchased recently. As could be expected, the administration also seems to recognize the taxpayer the choice not immediately attribute a loss to be able to charge later on added value that would not open right to such a strong abatement ” suggests Florent Ruault, lawyer at CMS Bureau Francis Lefebvre.

practical consequence: this new rule applies to most and losses realized in 2015, to declare when filing the tax return in May-June.

For capital gains in 2013 and 2014, taxpayers have the option to file a complaint to request reimbursement of overpaid tax, if in this case. Because, as recalled Florent Ruault, “the new rule decided by the State Council is not favorable to all taxpayers.”