Share investing has been a common way of investing for many years. Leading financial advisors, always consider share investing as an important tool to grow and accumulate wealth. Share trading has hence gone mainstream, where everyone from uni students to people approaching retirement, invest in shares. The attractive returns attract more and more people to buy shares. Given there is income, there needs to be tax. If one trades shares frequently as a trader, such as buying in the morning and selling by the close of the day or within a week and/so on and so forth, such an activity is classified as share trading and not investing and hence a share trading tax return (Share trader tax return) would need to be prepared and lodged. The CGT concessions available to investors would not be available for such an activity.
If you are a share trader who wants to seek opportunity and benefits from the share market, it is important for you to lodge the correct tax return to ATO since there are many differences between being a share trader and share investors. This article will help you understand the differences between the two approaches. Before starting a share trading tax return you need to determine which one are you. Are you an investor or a share trader.
Share trader or share investor?
You would be deemed as a share trader (requiring to lodge a share trader tax return) if you:
- Purchase and buy shares regularly
- Relatively large amount of shares traded
- Nature of your activities and size of investment.
- Have a business trading plan and trade the share in a business-like way
- Have business premises.
- Have relevant licenses and qualifications.
- Use share trading techniques for your business.
If you are confused about the nature of your activities and whether they are business-like, you can self-check you share trading pattern based on the information below:
- Have you conducted an analysis of the current investment before investing?
- Have you analyzed the market, current business trend and made a trend based decision?
- Is your decision making basically related to when, where and how to sell or hold shares?
- Do you have company’s prospectus or annual report for your share trading activities?
- Did you consult the investing division of the company before buying an IPO?
- Do you have a private broker involved with your share trading?
- Do you hold shares for a longer period of time even when they run in a loss or do you have a stop loss strategy implemented.
- Is your trading pattern more like quick in and out or is it more like stay in until you reap the maximum potential?
- Do you have another alternative source of income to rely on, or do you gain most of your income from stock market trading?
Some of the answers to the above questions will help you determine if you are a trader or an investor, however if you require expert assistance, we shall recommend giving us a call.
Tax treatments for share traders and share investors:
If you are a share trader:
- The shares you have bought should be considered as trading stock
- Gain from sales of shares is regarded as assessable income.
- Dividend is regarded as assessable income.
- Loss from trading can be deemed as tax deduction.
- Cost incurred for selling or buying of shares are same as the cost of running a business operation and hence can be claimed as a tax deduction.
- Cost of supplies which are essential for record keeping for the share trading business, for example computers and calculators, can be claimed as tax deduction.
If you are a share investor:
- Gain from share investment is considered as CGT (capital gains tax).
- Cost incurred with purchasing of shares cannot be claimed as tax deduction.
- Loss from selling the shares should be deducted from CGT.
- You would have an option to choose from 3 available methods to declare your CGT Share trading income.
*there are several methods to calculate capital gain tax such as average cost basis method, FIFO, & LIFO. Different methods would show different results based on different situations. We have expertise to use of the 3 methods and determine the most tax efficient one to lodge your tax returns.
The above information shows you, that there are many conditions you should consider when you lodge your tax return. Different tax treatments and different tax calculations would give you different figures and finally affect your profit & loss. We have prepared numerous share traders tax returns over the years and can help you with yours too. If yours is a Share trading CGT (Capital Gains Tax) tax return, we could help you with this too.