A Share trader is regarded by the ATO as conducting a share trading business when it comes to reporting your tax, based on factors around how you and how often you invest. An investor is looking long term and will not frequently undertake a systematic approach.
Tax law regards Share trading is assessed as income on a Revenue Account, and no Capital Gains Discount can be claimed.
Share traders and tax
However good news for share traders is, share losses are allowed as a tax deduction un S8-1 of the ITA997. A share trader can recognize unrealized losses and gains as the change value in the share process can be reflected. Whereas a Share Investor will only recognize losses and gains when they are realized. An investor can access the cgt 50% tax discount concession if shares are held for 12 months.
Your shares held as a share trader are considered trading stock and must be included as part of your year-end income statement. Your share stock can be valued at either cost, market, or replacement value, enabling you to determine the best tax result for you. If your records are in order, you can choose which suits your taxation circumstances for each parcel of shares
Factors that may classify you as a share trader
A share trader is considered in business if
- There is a system
- Operating to a plan
- Maintains regular trading in a systematic way
- Record system to track transactions and revenue earned
- The volume of the equity trading
- The reliance on share trading to earn a regular income
Determining if you are a trader will always be a matter of fact, and based on the above, your actions will determine whether the ATO would consider you a trader. Repetition – the frequency of transactions or the number of similar transactions – is a crucial characteristic of business activities as a share trader.
The higher the volume of your share transactions, the more likely it is that you are carrying on a business.
Changing from trader to investor
If your activities change from trader to investor, your shares are no longer trading stock.
At the time of the change, you treat your shares as if:
- just before they stopped being trading stock, you sold them to someone else (at arm’s length and in the ordinary course of business) for their cost
- you immediately bought the shares back for the same amount.
Take the time to consider your position. Look at your facts and consider what has been outlined above.
The information provided above is of general nature and not specific to circumstances. Please contact us if you would like to discuss your specific situation.