Norway imposes a net tax on share gains, equal to 22 percent of the gain per income year. Is it possible to design a screen criteria or simulation that incorporates the tax effect: (profit - loss) = outcome / 0.22 percent ?
one way to approximate this would be to have a constant cash position of 22%
A buy rule like “CashPct > 20” would be a start. Another alternative would be a model with near-constant 22% hedge - but I think you can only use a low volatility bond as hedge, not cash.
Thank you, sevensisters; that was a good idea. Even if it is imprecise, it can provide an indication of the impact of annual taxation burden on the portfolio performance.
Is this tax levied on unrealized gains or realized gains?
According to PWC:
Gains on shares and dividends are adjusted by 1.44 before being taxed at the rate of 22% income tax. The effective tax rate on gains on shares and dividends is therefore 31.68%.
That would mean realized gains, not paper gains.
Also dividends are reduced by a risk-free return interest rate applied to the basis.
If the dividend is greater than the risk-free return, the excess will be taxed as ordinary income.
In 2020 and 2021, share income will be multiplied by 1.44 (22 percent x 1.44 = 31.68 percent).
Yes, it is absolutely right as it is said above.
But to avoid too complicated a calculation of the tax effect, I would use 22%, because:
- We have tax exemptions for certain types of stock accounts
- We have tax exemptions for companies that gain from the sale of stocks
- The multiplying factor changes every year
- There is also a tax exemption for capital income below risk-free interest. This is determined at a rate each year by our own Ministry of Finance
So our capital gains tax, for net positiv capital income is as a starting point 22%
And yes, it is on realized gains.