Are you a share trader or share investor in Australia?
Before you lodge your income tax return with the Australian Taxation Office (ATO), you need to determine whether you are a share trader or share investor. This is necessary and important because there are major differences and tax implications under the Australian tax laws.
Are you carrying on a business of share trading?
In Australia, the issue of whether you are a share trader or share investor is a question of fact
In relation to carrying on a business more generally, the Courts in Australia have established the following factors as relevant considerations:
- The nature of the activities and whether they have the purpose of profit-making
- The complexity and magnitude of the undertaking
- An intention to engage in trade regularly, routinely or systematically
- Operating in a business-like manner and the degree of sophistication involved
- Whether any profit/loss is regarded as arising from a discernible pattern of trading
- The volume of the taxpayer’s operations and the amount of capital employed by the taxpayer
In relation to carrying on a business of share trading specifically, the Courts in Australia have established the following factors as relevant considerations:
- Repetition and regularity in the buying and selling of shares
- Whether the taxpayer is operating to a plan, setting budgets and targets, keeping records
- Maintenance of an office
- Accounting for the share transactions on a gross receipts basis
- Whether the taxpayer is engaged in another full-time profession
All of those factors are considered together to determine whether you are a share trader or share investor in Australia.
Tax implications for a share investor in Australia
If you are a share investor, the tax implications are as follows:
- Receipts from the sale of shares are not assessable income
- Any capital gain made from the sale of shares is subject to capital gains tax
- The cost of purchase of shares is not an allowable deduction against current year income
- The cost of purchase of shares is a capital cost that is considered as part of the costs base in calculating the capital gain
- A net loss from the sale of shares cannot be offset against assessable income of a taxpayer from other sources (e.g. salary or wages)
- A net loss from the sale of shares can be offset against another capital gain or carried forward to offset against future capital gains
- Dividends and other similar receipts from the shares are included in the assessable income of the taxpayer
- Costs incurred in earning dividend income are an allowable deduction against assessable income of the taxpayer (e.g. interest on borrowed money)
Tax implications for a share trader in Australia
If you are a share trader, the tax implications are as follows:
- Receipts from the sale of shares constitute assessable income
- Purchased shares are regarded as trading stock
- Costs incurred in buying or selling shares, including the cost of the shares, are an allowable deduction in the financial year in which they are incurred
- Dividends and other similar receipts are included in the assessable income of the taxpayer
Are you under a tax audit by the ATO for your share trading activities?
If you are audited by the ATO, you should contact an experienced tax lawyer immediately to get legal advice and representation. This will ensure that you get the possible outcome for the audit and minimise the ATO’s penalties.
Do you need legal advice from a tax lawyer on your share trading activities?
This content of this article is offered as general information only and should not be relied on as specific legal advice on whether you are a share trader or share investor under the Australian tax laws.
To get legal advice from King Lawyers on your specific circumstances, please contact us to arrange an initial consultation with our expert tax lawyers.