# Tax Definition of a Trader



## IFocus (5 June 2009)

Interested in any ones opinion of what they think the ATO accepts as the requirements to be taxed as a trader.

My own advice is frequency or trade a position larger than $20K

Any accountants out there?


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## MS+Tradesim (5 June 2009)

IFocus said:


> Interested in any ones opinion of what they think the ATO accepts as the requirements to be taxed as a trader.
> 
> My own advice is frequency or trade a position larger than $20K
> 
> Any accountants out there?




Even the ATO doesn't know for sure.

It's a case by case basis. Very simplistically, what they are looking for is that you are intending to focus on P/L through turnover, volume, consistency, administrated in a business-like manner, etc. 

http://www.ato.gov.au/businesses/content.asp?doc=/content/21749.htm

If you ring the ATO you will get conflicting answers each time. If you are seriously carrying on a business my advice would be find a very good accountant who is not just a bean-counter. They will advise you and bat for you if need be.

I'll have paid $6k in accountancy fees before this year is over and they'll have been worth every cent.


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## Krusty the Klown (5 June 2009)

Do you mean that your proceeds from trading will be taxed as ordinary income as opposed to capital gains?


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## Aussiest (5 June 2009)

MS+Tradesim said:


> I'll have paid $6k in accountancy fees before this year is over and they'll have been worth every cent.




Really? You must have been carrying on a business with a very serious tax structure. 

My accountant charged me $250.00 for share p/l, divs, self-employment income and i think i had a group certificate or two thrown in there. I calculated all my expenses vs revenue myself and gave it to her in a ss. If you'd like her number, i'd be more than happy to pass it on to you. She's based in Melbourne.

PM me if you like. Six grand sounds a lot


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## Aussiest (5 June 2009)

Krusty the Klown said:


> Do you mean that your proceeds from trading will be taxed as ordinary income as opposed to capital gains?




Yes. And the delightful thing about that is that you can claim a lot of expenses through your ABN. Eg, internet costs, depreciation on your computer/laptop, utilities, education materials, stationary, interest incurred and all other trading fees.


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## kincella (5 June 2009)

this is from the same link......
the $20,000 stated is a fairy tale
not all accountants are tax accountants, some do audit or other specialist areas...you just need a Tax Agent....even H&R Block should be able to handle these simple transactions....its not really complicated at all..
you should probably have sorted this out before you commenced trading....

Oh and just as a matter of interest...I find the people who want to be called a trader for tax...want to claim their losses, to offset against the other salary income...not profits...when they make a profit they want to claim the 50% CGT discount and be an investor.....I am not saying this is applicable to you....just going by the bloggers questions over the years
...................................................................................
Example 1 – Share trader

Molly is an electrical engineer. After seeing a television program, Molly decides to become involved in share trading activities.

Molly sets up an office in one of the rooms in her house. She has a computer and access to the internet.

Molly has $100,000 of her own funds available to purchase shares and, in addition, she has access to a $50,000 borrowing facility through her bank.

Molly conducts daily analysis and assessment of developments in equity markets. The resources she uses include financial newspapers, investment magazines and stock market reports. Molly's objective is to identify stocks that will increase in value in the short term to enable her to sell at a profit after holding them for a brief period.

In the year ended 30 June 2001, Molly conducted 60 share transactions: 35 buying and 25 selling. The average buying transaction involved 500 shares and the average cost was $1,000. The average selling transaction involved 750 shares and the average selling price was $1,800. All the transactions were conducted through stockbroking facilities on the internet. The average time that Molly held shares before selling them was twelve weeks. Molly's activities resulted in a loss of $5,000 after expenses.

Molly's activities show all the factors that would be expected from a person carrying on a business. Her share trading operation demonstrates a profit making intention even though a loss has resulted. Molly’s activities are regular and repetitive, and they are organised in a business-like manner. The volume of shares turned over is high and Molly has injected a large amount of capital into the operation.


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## Aussiest (5 June 2009)

kincella said:


> when they make a profit they want to claim the 50% CGT discount and be an investor.....




To my knowledge, you can only claim the 50% capital gains discount if you have held the shares for > 12 months.



kincella said:


> Molly's activities resulted in a loss of $5,000 after expenses.




Poor Molly


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## kincella (5 June 2009)

thats correct...
friend earning 200k's pa on income in a superfund...an investor ..long term buy and hold approach...bought cba at 6.00, nab at 10, bhp 10 etc
tips in 100k a year from business, was sitting on unrealised profits last year of 500k's....basically only buys...never sells...a lot of stock has been the subject of takeovers and returned some nice big fat profits..the last couple of years...holds about 40 stocks out of the top 50....
been out buying again recently....its just retirement money
it averages about net return of 5% pa in income...
it used to be 33% in each asset class...shares, cash and property...of course the stocks and property have outperformed.... over the years....cash has been a lousy return until last year...and fallen away quickly since Oct 08
they probably need to hold some more property to get the mix right again
they believe they need 200k pa income for retirement...so its tracking that way now..


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## MS+Tradesim (5 June 2009)

Aussiest said:


> Really? You must have been carrying on a business with a very serious tax structure.




If all I needed was a bean counter to charge me $250 to plug numbers into a tax return, I would forego them altogether and just use e-tax.

Multiple tax entities = multiple returns plus advice and strategy. As I said, worth every cent. This is my livelihood and it is run as a business.


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## Aussiest (5 June 2009)

kincella said:


> friend earning 200k's pa on income in a superfund...an investor ..long term buy and hold approach...bought cba at 6.00, nab at 10, bhp 10 etc




Niiice!


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## MACCA350 (5 June 2009)

So what's the benefit to be classes as a share trader for tax purposes?

Based on this article it's two fold:

1    Share traders can offset any trading losses incurred over the financial year against other assessable income.

2    Costs incurred in buying or selling shares are an allowable deduction in the year in which they are incurred.

Point 1, since we intend to make a profit any losses can be offset by gains made in that financial year or for up to 3 later years(IIRC)...........so this benifit is only good if you loose more than you gain every year, in which case why do you continue trading 

Point 2, does this mean that as an individual I cannot include my brokerage for each trade in my total profit/loss figures for CGT? Or can I still deduct them but only when I sell the shares?

Another thing that has a bearing on this is that being classed as a share trader means you don't get the 50% discount if you hold for 12 months.

What other benefits are there? 
I guess you'd have to weigh up everything and decide which is the best approach for your situation. Personally I plan to keep some stocks for more than 12 months, while trading others much more frequently

cheers


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## scanspeak (5 June 2009)

If you are classed as a share-trader, what is the advantage of registering as a company?


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## scanspeak (5 June 2009)

MACCA350 said:


> Point 2, does this mean that as an individual I cannot include my brokerage for each trade in my total profit/loss figures for CGT? Or can I still deduct them but only when I sell the shares?




The brokerage is deductable from your profit - it's a legitimate expense, as is the interest on your margin loan. 

If you haven't paid the brokerage yet (haven't sold), then obviously you can't claim it.


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## beamstas (5 June 2009)

scanspeak said:


> If you are classed as a share-trader, what is the advantage of registering as a company?




Tax rate


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## awg (5 June 2009)

to further confuse the issue

It is my belief, that conditions apply to the carry forward of a business loss, offset against other income.

Accountants can you comment?

To do with amount of loss, and other factors, cant remember.

My understanding ATO wont allow you to claim continual losses either

And what about someone like myself, that have held some stocks for years, but also done numerous medium term, and day trades as well?

As I trade mainly from within SMSF pension, I cannot claim costs or losses, so am treated as an investor, which I have been told is ok, and the only way that I can be assessed.

( income is taxed personally at concessional rate) 

but it is confusing, especially if I decide to trade more outside my super.

Of course, it is possible to submit a request for a binding ruling, which I previously did re another tax matter, and I am reluctant to do again, unless I have to.


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## bellenuit (5 June 2009)

Aussiest said:


> To my knowledge, you can only claim the 50% capital gains discount if you have held the shares for > 12 months.
> Poor Molly




If you are classed as a share trader, your trades do not come under the CGT system period.  So even if you hold the shares for > 12 months, you do not get the discount. 

Essentially, your profit or loss from trading gets added/subtracted to/from your other income for the year and you are taxed accordingly.

What the poster is referring to is that some people want to be classed as a trader when they make losses (so they can claim those losses in the current year), but if they make a profit from trading and its from shares held for more than 1 year, they want to be classed as a investor, not trader, so they can get the 50% CGT discount.

The ATO will be particularly looking into this this year as many people who have been making profits from their share investments for the last several years and claiming CGT discount where applicable may be tempted to claim they are a share trader this year, as like many people, they are under water due to the GFC.


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## MACCA350 (5 June 2009)

scanspeak said:


> The brokerage is deductable from your profit - it's a legitimate expense, as is the interest on your margin loan.
> 
> If you haven't paid the brokerage yet (haven't sold), then obviously you can't claim it.



I meant both buy and sell brokerage.......what about the brokerage when you buy? is that only claimable when you sell as an individual?

I'm guessing that the trader would claim deduction based on when the fee was payable(ie buy or sell dates separately)..........where as the individual only claims when the shares are sold and deducts from the CGT profit/loss

cheers


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## bellenuit (6 June 2009)

MACCA350 said:


> I meant both buy and sell brokerage.......what about the brokerage when you buy? is that only claimable when you sell as an individual?
> 
> I'm guessing that the trader would claim deduction based on when the fee was payable(ie buy or sell dates separately)..........where as the individual only claims when the shares are sold and deducts from the CGT profit/loss
> 
> cheers




It's a lot more complex than explained so far. 

The brokerage and GST on buying gets added into the cost of those shares and the brokerage & GST when selling gets deducted from the sale value. 

Your profit is worked out as follows: 

Sales - Cost of Sales = Profit (or Loss) 

Cost of Sales = Value of Opening Stock + Purchases - Value of Closing Stock

What makes it complex is that you can value your closing stock at Cost or at Market Value, whichever works out best for you. Additionally, you can value some of your shares at cost and some at market value AND you can change the method from year to year. In the above equation, Value of Opening Stock is ALWAYS the same as Value of Closing Stock of the previous year. Purchases in the above equation is the cost of buying the shares including brokerage and GST. Sales in the above equation is the net proceeds from selling the shares (e.g. after deducting brokerage and GST of the sale). 

If you value you closing stock at market value, you could show a profit or loss for the year even if you bought or sold nothing in the year (the profit will be the increase in value of your closing stock over what it was valued as opening stock).

The best way to understand it is to play around with the formulae using a couple of hypothetical purchases/sales and see what the results yield.


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## jono1887 (6 June 2009)

bellenuit said:


> It's a lot more complex than explained so far.
> 
> The brokerage and GST on buying gets added into the cost of those shares and the brokerage & GST when selling gets deducted from the sale value.
> 
> ...




I'm lost... can any translate in more simpler terms


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## Krusty the Klown (6 June 2009)

jono1887 said:


> I'm lost... can any translate in more simpler terms




What Bellenuit is saying is that the stocks or shares held and traded are treated as trading stock like a retail or wholesale business carries. The shares are being treated like inventory from an accounting perspective.

Going back to the original post, it doesn't really matter whether you call yourself a trader or not, as long as you declare profits as income.

Whether they are capital gains or not, it is still assessable income and are taxed the same way - at marginal rates. It does not matter if you have an ABN or not. If you form a company and quarantine all your trading inside it, then you will pay 30% company tax. If you take profits out of the company as a shareholder dividend you will be taxed at marginal rates, less franking credits. If the profit ends up in the hands of an individual in the wash it all comes out the same.

If in one tax year, you work out the cost base (purchase price + brokerage and disposal costs) of each trade and subtract from sale proceeds individually, or add all brokerage up and declare it as a deduction against all income it all adds up to the same amount, so therefore the result is the same.

If you want to claim the 50% CGT discount on holdings over 12 months, we live in a self reporting tax structure, so it is up to you what you claim. The 50% CGT discount is not available to companies however, only individuals, trusts and super funds. Why would the CGT discount not be available to an individual trader who holds shares for longer than 12 months? 

A lot of accountants have different opinions and different ways to do things but it is the end result that matters, and if this is the same regardless of which way you calculate it -I don't know if it matters.


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## kincella (6 June 2009)

its quite distinct....share trader....versus an investor....when an investor who has held shares for over 12 months...makes a profit...they are entitled to the capital gain discount.....its the capital account (and the word capital) ....you need to distinguish...from a trading account....

capital gains discount  is an incentive for investors to hold an asset on their capital account for longer than a year....it applies to most assets....as investments...includes investment property, works of art, stamp collections etc and of course shares or stocks

I am pretty certain I saw a case argued by an individual as an investor and also a trader....they had a portfolio of stocks on their capital account that were not activley traded......and they received the CGT discount on the sale and profit

they also had another account where they activley traded stocks, and were considered a trader for tax purposes.....they did not mix their stocks, nor did they attempt to change or swap certain stocks to gain the tax advantage...

but how much trouble is that worth, having to deal with the ATO, and be subject to so much scrutiny....

if they are seriously making good money, they are better off with another entity and keep the assets separate....in this case a company for the trading account...where cgt discounts are not applicable....and the capital /investment account in their own name..or the superfund if applicable....

trading status is determined if its run like a business....in that example of 60 trades a year...that to me is at the bottom of what one would expect to be called a business...its on the bottom ....the  edge....with an average one trade a week..
I know of investors who  average 50 transactions a year....but they do not consider themselves traders....its all about maximising their investments and the returns....oh and the cgt discount on the profits works well for them


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## scanspeak (6 June 2009)

Great explanations, thanks guys!


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## bellenuit (6 June 2009)

Krusty the Klown said:


> If you want to claim the 50% CGT discount on holdings over 12 months, we live in a self reporting tax structure, so it is up to you what you claim. The 50% CGT discount is not available to companies however, only individuals, trusts and super funds. Why would the CGT discount not be available to an individual trader who holds shares for longer than 12 months?




Self reporting doesn't mean that your claim will be accepted, if audited, and that you won't be fined and pay interest and penalties.

The CGT discount is NOT available to a trader (whether individual, company, trust or super fund). It is one of the trade-offs. You get to write off loses against other income, but you do not get the CGT discount, because (as the previous poster stated) they are not capital gains, but income from the business of trading. 

The section from an ATO document explains it better that I can:

http://www.ato.gov.au/businesses/content.asp?doc=/content/21749.htm&page=6&H6

One issue that the previous poster raised is whether one can be a share trader and share investor (share holder) at the same time. In 2000, I checked with the ATO and was informed then (on 2 separate occasions) that you could not. Just one or the other. If you wanted to do both, the suggestion was to set up a separate legal entity (e.g. company) to do one of the activities. This is what I did. I trade under my company account and hold shares for investments under my own name. Recently there was an article in the Australian that stated the one legal entity could be both a trader and share holder, so I again called the ATO and was told that, yes, you could be both..... BUT you need to ensure that you define what purchases are to be trades and what are to be investments when buying them and don't try to switch mid-stream to get a tax advantage.

My suggestion would be, if you don't want to set up a separate legal entity, to have 2 accounts with your broker, one for each activity. Then if audited, it should be clear to the ATO what was meant to be what. If you mix them together, you may end up in strife if the ATO thinks you are switching after the event.


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## bellenuit (6 June 2009)

kincella said:


> I know of investors who  average 50 transactions a year....but they do not consider themselves traders....its all about maximising their investments and the returns....oh and the cgt discount on the profits works well for them




One question I forgot to ask the ATO when I called them recently that perhaps someone here might know. I'm pretty OK with what one must do to be seen as a share trader by the ATO, but what I am not sure of is whether the ATO could classify you as a trader even if you don't want that to be the case. 

Say for instance that I have a big portfolio of shares that I hold for investments, but also from time to time do some trading when I think that might be the most profitable way to handle specific stocks. If my trading activities would qualify a person for being a trader in the eyes of the ATO, can I still treat all my activities as investments? 

The reason I might want to do that is that I don't want the administrative overhead of having 2 different ways of reporting my share activities for tax purposes and am happy to have everything under the CGT system.


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## kincella (6 June 2009)

the answer is no...the ATO will not classify you as a trader... well I have never heard anything like that....
unless of course you were doing hundreds of trades and turning over some really big money...that might catch their eye...and at the same time applying the CGT discount when it suited....
of course the ATO sometimes wakes up and changes its opinion about something....years ago they would not have contemplated one could be trading and investing...but all the online broking sites and individuals who entered the stock market have changed things...

each trade detail is required for the Capital Gains Tax Worksheet, including the date purchased, cost price, date sold and sell price


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## Loose (6 June 2009)

There have been some serious questions raised here in this thread.

To put it simply, if your trading activities are significant enough for these issues to arise then you should seek proffesional advice. As informative as this forum is, different circumstances require different solutions. I would recommend a taxation specialist, preferably a tax lawyer.

If you're trading with a small position then something as simple as a partnership with income splitting could be all you need.

I am no expert so please seek your own advice but remember if you pay peanuts you can get monkeys.

Cheers


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## Krusty the Klown (6 June 2009)

bellenuit said:


> Self reporting doesn't mean that your claim will be accepted, if audited, and that you won't be fined and pay interest and penalties.




If the net tax paid is sufficient for the ATO, regardless of how it is determined, if you can demonstrate due diligence or reasonable care (under common law) you will not incur a fine or a penalty. If you do then you can object to the assessment and take it to court.



> The CGT discount is NOT available to a trader (whether individual, company, trust or super fund). It is one of the trade-offs. You get to write off loses against other income, but you do not get the CGT discount, because (as the previous poster stated) they are not capital gains, but income from the business of trading.
> 
> The section from an ATO document explains it better that I can:
> 
> http://www.ato.gov.au/businesses/content.asp?doc=/content/21749.htm&page=6&H6




No, that doesn't mention the CGT discount at all.

To be recognised as a share trader or that a business is in the business of share trading is subject to private ruling by the ATO.



> One issue that the previous poster raised is whether one can be a share trader and share investor (share holder) at the same time. In 2000, I checked with the ATO and was informed then (on 2 separate occasions) that you could not. Just one or the other. If you wanted to do both, the suggestion was to set up a separate legal entity (e.g. company) to do one of the activities. This is what I did. I trade under my company account and hold shares for investments under my own name. Recently there was an article in the Australian that stated the one legal entity could be both a trader and share holder, so I again called the ATO and was told that, yes, you could be both..... BUT you need to ensure that you define what purchases are to be trades and what are to be investments when buying them and don't try to switch mid-stream to get a tax advantage.




If you are subject to a private ruling that you are designated as carrying on the business of share trading, then the terms of that private ruling apply to you and you alone. The treatment of a private ruling by the ATO is for the applicant only. Otherwise it would be called a "general ruling". If you cannot claim the CGT discount then it is for you only.

If you get verbal advice from the ATO and not in writing, it is not enforcable, and I guarantee you the ATO's lawyer's would tell you this.



> One issue that the previous poster raised is whether one can be a share trader and share investor (share holder) at the same time.




Of course you can.



> In 2000, I checked with the ATO and was informed then (on 2 separate occasions) that you could not. Just one or the other. If you wanted to do both, the suggestion was to set up a separate legal entity (e.g. company) to do one of the activities.




This does not make sense. 

If you can supply some evidence of this I would be grateful to see it.


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## bellenuit (7 June 2009)

Krusty the Klown said:


> If the net tax paid is sufficient for the ATO, regardless of how it is determined, if you can demonstrate due diligence or reasonable care (under common law) you will not incur a fine or a penalty. If you do then you can object to the assessment and take it to court.




My response was in relation to a trader claiming the CGT discount, so it would be fair to assume that the net tax paid was less than what should have been paid, although there will be cases where this does not apply, such as when total taxable income is under the tax threshold. I think it may be difficult to demonstrate due diligence, when there is no basis for claiming the CGT discount when you classify yourself as a trader for tax purposes.



Krusty the Klown said:


> No, that doesn't mention the CGT discount at all.




No, but it is obvious from the text. For example:

For a Share Trader:

- receipts from the sale of shares constitute income
- costs incurred in buying or selling shares are an allowable deduction in the year in which they are incurred

For a Share Holder:

- receipts from the sale of shares are not assessable income – however, any net profit is subject to capital gains tax

For a trader, receipts from sales are added to income, costs related to the sales are a deduction. The net effect is that these two components (income and deductions) go to different parts of your tax return. For a share holder, you actually calculate the profit on each sale and the net profit is what is taxed and it is taxed according to the rules of the CGT. So, if held for 1 year +, then the CGT discount applies. 

It is because of the way they are handled as described above that when a trader makes a NET loss from share trading, that loss will be applied against other income in the current tax year (i.e. the deductions are not applied just against share trading income, but against all income), but when a share holder makes a NET loss, because it is under the CGT system, that loss doesn't get deducted from other income, but is carried forward to future years.



Krusty the Klown said:


> To be recognised as a share trader or that a business is in the business of share trading is subject to private ruling by the ATO.
> 
> If you are subject to a private ruling that you are designated as carrying on the business of share trading, then the terms of that private ruling apply to you and you alone. The treatment of a private ruling by the ATO is for the applicant only. Otherwise it would be called a "general ruling". If you cannot claim the CGT discount then it is for you only.




You don't need a private ruling to be recognised as a share trader, though you could request one if you think your activities are borderline and want confirmation. Whether you get a private ruling or not, if you are classified as a share trader (either by your own decision, or by the ATO), you cannot claim the CGT discount. 



Krusty the Klown said:


> Of course you can.
> 
> This does not make sense.
> 
> If you can supply some evidence of this I would be grateful to see it.




As from my post, when I initially contacted the ATO in 2000, I was informed that you could not be a trader and investor at the same time. I read an article a few weeks ago that said you could and when I called the ATO after reading the article, I was told you could be. What I didn't mention above was that when I called the ATO the first person I spoke to agreed with me and said that you couldn't be both, but said that he was not an expert in that area and passed me on to another person who said you could.

It is quite clear that people have not been given consistent answers from the ATO in relation to that question. Just check some of the messages on this and other message boards in relation to this. 

You could ask for a private ruling on whether you could be both a trader and share holder and when I initially asked in 2000, I was told that was an option open to me. I decided not to request a private ruling as I also wanted to trade through a US broker and decided that it might be best to set up a company to do it in any case. But even if you do get a private ruling that you can be both, as mentioned above, you cannot claim the CGT discount on shares you designate as part of your trading stock. 

The status for me at the moment is that I have now received verbal confirmation that I can do both, but because I already have a company, I will just continue to use it for trading. But it does impose additional costs.

And no I can't supply evidence of what I was told by the ATO on these occasions, but why do you think I would want to deliberately misstate what I was told?

However, the CGT discount issue is not a question of my interpretation. That is the way it is for share trading.


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## Krusty the Klown (8 June 2009)

bellenuit said:


> And no I can't supply evidence of what I was told by the ATO on these occasions, but why do you think I would want to deliberately misstate what I was told?
> 
> However, the CGT discount issue is not a question of my interpretation. That is the way it is for share trading.




We're roughly on the same page here.

I have no doubt that you are not misstating what you have been told and are acting in all best faith. I'll try and clarify what I'm saying, as I think you may be dis-advantaging yourself.

What I am saying is that you, as an individual, trust, or superfund taxpayer, can be an share holder and a share trader at the same time and claim the CGT discount. But you have to be able to prove it to the ATO. As you said you are already doing it but you are separating your activities via a separate legal entity, but you don't have to.

The key is to the scenario is this:

Assessable income = "ordinary" income + "statutory" income.

"Ordinary" income is regular, repetitive, similar income such as wages, salary or daily business income.

"Statutory" income is _extra-ordinary_ income that is only deemed assessable by legislation. Capital Gains is an example, ie. a one off profit on the sale of a long term asset held by a business such as a factory.

If you have share trading activity and you choose to report the income or loss as "ordinary" income, then you are correct that you can use any loss as a deduction against other ordinary income, such as wages. As the income is not captured by the capital gains provisions, the CGT discount cannot apply

The same with capital gains income, it can only be offset against other capital gains income. You cannot mix the two, offset losses or deduct expenses from ordinary income.

However, if you take _reasonable care and show due diligence_ as an individual taxpayer, by keeping your trading activities and long term investment activities separate there is no reason that the CGT discount would not apply to your capital gains income. They can be both reported on the same tax return. You would need to have different trading accounts, a different HIN would help, a separate business plan, trading statements and profit and loss statements to justify your claim if audited.

What would get you in to trouble, as kincella, pointed out earlier,  is that you should not pollute the waters by transferring assets between the two portfolios. If you had a holding in your long term portfolio which was underperforming, and had no other realised capital gains for that tax year, if you transferred it into your trading portfolio and sold it in June and deducted the loss against your ordinary income, then that would indicate _intent_ to avoid tax and would be captured under the Part IVA anti-avoidance provisions. That is what the ATO is looking for.

Bear in mind that ATO employees are not qualified as tax advisers/agents, so even if they act faithfully and honestly by passing on information, they may not know how to use the information to its fullest extent.

If you choose not to claim the CGT discount on your long term portfolio, then that's fine. You don't get fined for overpaying tax. _You are interpreting the information you have been supplied with._ But that does not mean what you do applies to everyone else. Everybody's financial circumstances are different.


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## SilverRanger (19 July 2010)

This is probably the right thread and the right time for my question, hope some of our experts here can have the answer:

I have been trading quite actively in the US share market (both long and short, about 400+ trades in total), and bought some long dated call options on distressed US companies (Visa and BP for example) intended for investment purpose.
So my question is that how should I calculate my "Ordinary"/business income, given they are earned in foreign currency? And wrt the options I bought, which were bought in the same brokerage account, should/can they be treated as CGT item? If so, how can I prove to the ATO that they are indeed for investment purpose?


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## IB12 (19 July 2010)

Great thread, was just thinking about these issues. 
So I have an ABN (sole trader). Does my personal trading count towards my ABN or to me personally? I know it doesn't make a different in the end, it is still personal income, but how do I classify it?

This is definitely 'trading' and not 'investing' as the trades are made 30mins to 1-hour apart.

What I want to do is to write off trading losses against other assessable income (such as a salary), plus the fact that trading expenses like brokerage and computers/internet can be claimed as a tax deduction. 

The fact that you may be a salary or wage earner, investor or someone carrying on business as a plumber, accountant, dentist etc, does not alter the fact that you may be treated as carrying on a trading business...the classification is merely for the purposes of determining how your gains and losses will be taxed.


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## bellenuit (14 May 2011)

I was reading in the Smart Money section of today's Financial Review that SMSFs that make frequent short term trades can no longer categorise themselves as "share traders" and will be taxed under the CGT system. Thus trading losses can no longer be written off against current year's income, but must be calculated according to the CGT regime and can only be written off against current or future capital gains. This is a new measure from last week's budget.

All share transactions, irrespective of their frequency and the period length held, will be treated as investments and come under the CGT system. 

The rationale is that SMSFs are meant to be long term investment vehicles.

As I don't have a SMSF, I will not be investigating this change further, but those who do should.


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## kingcarmleo (17 May 2011)

Have found the ATO joke to deal with, with regards to CGT and all other taxes for that matter. I just get my accountant to deal with everything directly.


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## nulla nulla (17 May 2011)

bellenuit said:


> I was reading in the Smart Money section of today's Financial Review that SMSFs that make frequent short term trades can no longer categorise themselves as "share traders" and will be taxed under the CGT system. Thus trading losses can no longer be written off against current year's income, but must be calculated according to the CGT regime and can only be written off against current or future capital gains. This is a new measure from last week's budget.
> 
> All share transactions, irrespective of their frequency and the period length held, will be treated as investments and come under the CGT system.
> 
> ...




If capital losses were taken to book at the nadir of the Global Financial Crisis, I suspect a few SMSF would still be offsetting their subsequent capital gains against the accrued capital losses.


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