# Tax Question



## freelancer (5 March 2006)

Hello All,
I am new here, and had a couple of general questions. Iam almost 18 and have been always interested in the stock market. My plan is to sign up with E* Trade. But what I am not sure about is the Tax, if I just so happen to make some money. I am not working, so there are no other sources of income for me. However, at the end of the year I may have a job. As I am new to the stock market it would only be a couple of thousand that i would be willing to initially invest, mainly to get some exposure to the market.

So in relation to tax, how does capital gains effect me? and how do i go about declaring this tax or is it all done through E* trade??? I really have no idea at all, and I have never lodged a tax return before either.

I am very new to this so any information would be greatly appreaciated, oh and I am currently playing the ASX Sharemarket game, don't know if that helps.


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## Bobby (5 March 2006)

freelancer said:
			
		

> Hello All,
> I am new here, and had a couple of general questions. Iam almost 18 and have been always interested in the stock market. My plan is to sign up with E* Trade. But what I am not sure about is the Tax, if I just so happen to make some money. I am not working, so there are no other sources of income for me. However, at the end of the year I may have a job. As I am new to the stock market it would only be a couple of thousand that i would be willing to initially invest, mainly to get some exposure to the market.
> 
> So in relation to tax, how does capital gains effect me? and how do i go about declaring this tax or is it all done through E* trade??? I really have no idea at all, and I have never lodged a tax return before either.
> ...




Hi & welcome to ASF.
Your first $6000 is free of any tax I think as you have no outher income .
But just phone tax office for more information.

Good luck in future.

Bob.


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## GreatPig (5 March 2006)

You should record all purchases and sales, including their dates, prices, and brokerages, and when you do your tax return, work out whether you made an overall profit or loss for the year. If a profit, then you declare that as income for the year (along with any other income you made elsewhere) and pay tax accordingly. If a loss, then you generally carry that forward to the next year. Brokerage (but not GST) comes off the gain before calculating tax.

It can get a bit more complicated though, as for any stocks you hold for more than 12 months, you get a 50% discount on the tax payable when you sell them. And if you have a loss, you can offset it against other capital gains you might have but not against other income (eg. wages). By the sound of it though, you probably wouldn't have any other source of capital gains (the other common one is from the sale of real estate).

If you can't figure it out yourself, get a tax agent to work it out for you - at least for the first year. If you intend to start using a larger amount of funds though, you may want to consider seeing a good accountant before investing too heavily. They may be able to suggest more tax-effective ways to do it.

These comments assume purchasing in your own name (ie. not through a trust or company) and that you're only classed as an investor by the tax office, not a trading business. And these are only comments based on my own understanding. You really need to see a tax agent or accountant for proper advice specific to your situation.

Cheers,
GP


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## Julia (5 March 2006)

Bobby said:
			
		

> Hi & welcome to ASF.
> Your first $6000 is free of any tax I think as you have no outher income .
> But just phone tax office for more information.
> 
> ...




Yes, as Bob says above, and no, E-trade will not have any responsibility whatsoever for your tax obligations.  The ATO are very helpful if you phone with any questions at all.

Re your question on playing the ASX sharemarket game:  I guess you could use this as a theoretical example from which to work out any tax you could be liable for, though with the first $6000 being tax free as Bob has pointed out, you're probably not likely to incur a tax liability when playing with $50,000 unless you are very lucky or very clever!  Not sure whether you know or not, but capital gains tax is applied if you sell shares at a profit:
This is reduced to 50% if the shares have been held for more than 12 months.

Congratulations on having anything at all to invest at your age and with essentially no income.  Best of luck and good wishes.

Julia

Julia


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## son of baglimit (6 March 2006)

be aware freelancer - one thing not clearly stated was : just looking at this financial year only to begin with - 
that income from shares (and therefore income tax payable) is only the dividends you collect prior to june 30 - if any. these divs may be 'franked' (tax already paid at 30%) and therefore you may get some refunded.
and any capital gains tax payable is only if you sell - profit in your hands - not paper profits. 
remember folks freelancer is new to this world (unlike some of us old f****) and therefore we should ensure we speak plain & clear until they get themselves more accustomed to this foreign language - never assume anything.
as the others have said, contact tax office (ato) 132861 - make sure you speak to someone who is happy to spend a good 10 minutes with you - some of them will just say anything to finish the call....or look at ato.gov.au.
a summary freelancer : the 1st $6000 you earn in any financial year is tax free (if you get a job now and earn less than $6000 before tax (gross) you get all the tax back), then every dollar above $6000 up to $21600 is 15% - other rates apply above that. 
good luck with your individual situation - i say that because every persons situation is different - take your time, put up with a loss or two, use this forum to have some questions answered, use the answers from here to form a basis for your questions to the ato. always get at least 2 sources of info on anything to do with tax - there are differing perspectives everywhere.


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## surelle (6 March 2006)

well said, son of bag..
good luck freelancer , it's all a learning curve, but you've come to the right place, the people on this forum have some good comments to share and learn from
have fun


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## Duckman#72 (6 March 2006)

son of baglimit said:
			
		

> and any capital gains tax payable is only if you sell - profit in your hands - not paper profits.
> remember folks freelancer is new to this world (unlike some of us old f****) and therefore we should ensure we speak plain & clear until they get themselves more accustomed to this foreign language - never assume anything.
> as the others have said, contact tax office (ato) 132861 - make sure you speak to someone who is happy to spend a good 10 minutes with you - some of them will just say anything to finish the call....or look at ato.gov.au.
> a summary freelancer : the 1st $6000 you earn in any financial year is tax free (if you get a job now and earn less than $6000 before tax (gross) you get all the tax back), then every dollar above $6000 up to $21600 is 15% - other rates apply above that.




To add to Son of Baglimit - be aware of your ability to offset capital gains against capital losses (but in must be needs to be the the same financial year). If you have some mixed success early that has given rise to a capital gain, but you are also sitting on losses - think about "crystalising" your loss (that is selling the share and buying back in again). You need to do this before the 30th June. 

The worst case senario is having a capital gain in this year (and paying tax on the lot) and then making a capital loss in the following year (which just sits until you make another capital gain).

Good luck

Duckman


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## freelancer (6 March 2006)

Thank you all very much.... I really appreciate the responses.

But just to clarify. I am not required to pay tax as my income is under 6000, but I must pay capital gains tax on any profit that I make. So they are separate (Capital gains and regular Tax)????


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## KaiserBun (6 March 2006)

Hello Freelancer, 

I strongly suggest that you call the ATO on 132 861
You will need to explain your full circumstances to the tax officer who takes your call.

The details given in the forum is too general. 

For example, have you ceased full time education for the first time??

Reason: the $6000 tax free threshold is pro rated in the financial year that you cease full time education for the first time. 

Thus, you may not actually get the first $6000 tax free that has been expressed in replies to you.  (you can refer to the 'Adjustment' section of taxpack (you can search www.ato.gov.au and put in search facility 976 - it will bring up taxpack)

Will you be 18 as of 30 June 2006??? 

If not, and depending on the source of funds, your income maybe subject to minor tax rates. Thus, you may not receive a $6000 tax free threshold. 

So moral of story, talk to ATO or a tax adviser.
If you talk to ATO, get them to point out in one of their publicationsthe information they give you, this way you can make sure they are giving you the correct information.

Good luck


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## son of baglimit (6 March 2006)

well said kaiser - to be honest didnt know about the pro rata bit after leaving school - have to research that one.


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## mit (16 July 2006)

*Bass Strait Oil*

Bass Strait oil had a capital return of 25 cents through the year. The dividend notice said that this is  not normally taxable for most unit holders, but is still needs to go against the capital return for the year doesn't it?

TIA

MIT


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## Duckman#72 (16 July 2006)

Hi MIT

Generally "Returns of Capital" paid back to shareholders are not taxable in the sense dividends are. However the amount recieved reduces the cost base of the shares you are holding.

For example if you originally purchased 10000 shares in XYZ Pty for $1 per share - the cost base for CGT purposes is obviously $10,000. Lets say in the 2005/6 financial year you received a return of capital of $500. 

Then the cost base becomes ($10,000 - $500) $9,500. Nothing needs to be brought into account in your tax return until you sell XYZ Pty Ltd.    

Regards
Duckman


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## DOC (16 July 2006)

good and accurate advice.


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## mit (17 July 2006)

Thanks Guys, 

I didn't think we were getting something for nothing.

MIT


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## freelancer (17 July 2006)

Hey everyone...

Just an update... Now 18 so iam going down to Commonwealth bank to open a direct investment account (think thats what its called).....allows $19.95 trades through Commsec.

Iam still currently "unemployed" and won't be working until well into next year.

Again thanks for all your reply's, and I will keep you updated.


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## bvbfan (17 July 2006)

You won't be able to open the CDIA in a branch, if your lucky they will witness documents and post them of for you.

But I'd suggest just get them to witness any documents you need and mail it yourself to the address in Australia Square I believe (if your outside NSW it could be a different address)

Give it about 10days and follow up if you don't hear from them, they never sent me any paper work and then the account was opened incorrectly.

Cost us a packet


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## Crazy Shark (17 July 2006)

Freelancer

Since you are young, and are a budding trader I will do you favour. Some of the advice you have above is nearly correct so.........i will guide you in the right direction

I am a chartered accountant, registered tax agent and active market trader. I offer free advice up to a point. Fire away. 

accountant.tax@gmail.com OR
austrader@gmail.com



p.s. make sure you mention you are a Aussie Stock Forum member


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## Mouse (18 July 2006)

Hi Freelancer,

Just my 2c .. but I'd recommend you have a chat to an accountant or tax agent and get them to show you what sort of record keeping to do, as well as asking the tax questions.  It can save a lot of time and hassle in the long run if you start off right.

cheers
Mouse


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