Let’s start with an example to make things a little clearer:
An investor (on a 45% tax bracket) has managed a profit of $20,000 for the year buying and selling shares. At this stage (ignoring any discount method claims), the investor owes $9,000 in tax from the $20,000 profit.
Let’s say that the investor is also holding 3 shares with an unrealised loss of $5,000 between them. In order to save tax, the investor sells off these shares and crystalises the loss. Assuming $29.95 brokerage per sale, the investor’s new profit is $14,910.15. The tax liability on this new profit is $6,709.57, which is a saving of $2,290.43 worth of tax.
Now if that investor were to buy back their stocks (assuming at sale price for this example) they would be liable to another $89.85 in brokerage. This takes the net benefit to $2110.73. This method is known as a wash sale, and strictly from a tax point of view, would appear to be a favourable option as you’ve saved tax and kept your assets. Unfortunately the ATO are all too aware of wash sales and consider them illegal. For more info, visit the ATO website.
If you have undertaken what you think is a wash sale it is better to treat it as if you never sold the asset. There is no problem, however, to selling a share for a loss at market value, provided the dominant purpose is not for a tax benefit. Note that you shouldn’t base a sale purely on the tax benefits anyway as you should have your investment strategy in place for a reason. But if you were thinking about offloading some underperforming assets to reinvest into something with more potential, then it may work out better to do so on this side of the EOFY.