# Brokerage fees tax deductible?



## Paladin (14 July 2008)

Hey all. I know this is one for my accountant, but he might charge me for the call and I'm currently prepping my FY08 financials for him after hours 

As I understand it brokerage fees are only tax deductible for investors, as opposed to traders, as a capital loss? Is that right? Seems silly - should be an investment cost rather than a capital item.


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## Whiskers (14 July 2008)

This ATO page should help.



> *Expenses that are not deductible*
> 
> Unless you are considered to be a share trader, you cannot claim a deduction for the cost of acquiring shares – for example, expenses for brokerage and stamp duty. These will form part of the cost base for capital gains tax purposes when you dispose of the shares. For more information, see the Personal investors guide to capital gains tax 2008.
> 
> ...


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## subaru69 (14 July 2008)

So what is the definition of a 'Share Trader'?  Is it a numerical thing or do you have to nominate that a % of regular income comes from shares.  Is there a up/downside to doing it one way or the other? :1zhelp:

Thx


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## milothedog (14 July 2008)

from the ATO website - brokerage is usually claimed only when capital gain/loss occurs for investors - traders have different rulings, may be worth call to your accountant
Expenses that are not deductible

Unless you are considered to be a share trader, you cannot claim a deduction for the cost of acquiring shares – for example, expenses for brokerage and stamp duty. These will form part of the cost base for capital gains tax purposes when you dispose of the shares. For more information, see the Personal investors guide to capital gains tax 2008.

http://www.ato.gov.au/individuals/content.asp?doc=/Content/00135936.htm&page=13&H13


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## Whiskers (14 July 2008)

Also from ATO.



> *Carrying on a business of share trading *
> 
> A ‘business’ for tax purposes includes ‘any profession, trade, employment, vocation or calling, but does not include occupation as an employee’. This definition would include a business of share trading.
> 
> ...


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## AlterEgo (14 July 2008)

Whiskers said:


> This ATO page should help.
> 
> Quote:
> Expenses that are not deductible
> ...




Note the part I highlighted. If you are an "investor" (as apposed to a "trader") you do still get compensated for the brokerage, but in this case it forms part of the cost base for CGT calculations rather than being regarded as a "deduction". It's just playing with figures really. Either way you effectively still get a reduction in the tax component of the brokerage. If you are regarded as an "investor" then your accountant will need to know what brokerage was paid on any shares that you sold during the 07-08 financial year.


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## AlterEgo (14 July 2008)

Paladin said:


> As I understand it brokerage fees are only tax deductible for investors, as opposed to traders, as a capital loss? Is that right? Seems silly - should be an investment cost rather than a capital item.




For "investors", yes it's regarded as a capital cost. So basically your total capital gain for tax purposes is the TOTAL amount received from the sale of the shares (including brokerage costs) MINUS the TOTAL amount paid for the shares (including brokerage costs).


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## Paladin (15 July 2008)

Whiskers said:


> Also from ATO.




In terms of being considered a trader - I also believe that whether or not you have a 'day job' is a consideration. If someone has a day job, spends only several hours a week trading etc, then from previous rulings they seem to be firmly considered an investor from the ATO's perspective. From what I read last night about past actual rulings on this issue, the burden of proof needs to be fairly high to demonstrate that you're a trader, and I doubt many people really qualify. For one, you'd need to prove that you have a well researched strategy and that you trade along those lines and keep absolutely meticulous records at relatively high volumes to demonstrate that you're not just punting. Do you need a dedicated office (home or no) for trading? Etc. 

I still don't see the fundamental sense of NOT allowing brokerage on an as-accrued basis as an expense against income (like interest on an investment loan, for example, or tax advice or other services used in establishing an investment or even a trip to see your rental property), but mine is not to reason why.

It's a pity because things like low value pooling and depreciation on professional libraries etc help me out a lot when it comes to my other work. One day I might have enough money in the game to have it as a reasonable third or fourth income stream, but I'll never be a trader!


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## charttv (16 July 2008)

I rang the ATO several times and spoke to several different people and got several different answers.

I have been writing options for income though this has not been my main income generator for the past few months.

Some ATO reps say "yes, you are classified as a share trader and can claim it an expense," and some said "no, you will have to add brokerage to the cost base of the shares."  

For written options some said that this was a capital gain and had to be treated as such and some said that it was business income.....I am confused.


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## Paladin (16 July 2008)

charttv said:


> I rang the ATO several times and spoke to several different people and got several different answers.
> 
> I have been writing options for income though this has not been my main income generator for the past few months.
> 
> ...




Um. . . when you get someone who says yes, I'd ask for an oral or preferably written ruling to that effect. That way they're obliged.


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## Whiskers (16 July 2008)

charttv said:


> I rang the ATO several times and spoke to several different people and got several different answers.
> 
> I have been writing options for income though this has not been my main income generator for the past few months.
> 
> ...




You may even get different opinions in greyish areas of new or unclear laws from different accountants. This was common when the GST was introduced.

I would also write to the ATO and ask for an ' Official Ruling' for your particular circumstance. I've done it a couple of times over the years. That way you have certainty and peace of mind.


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## jono1887 (11 July 2009)

Are late fees (like when you put the money in your trading account a day late with comsec) tax deductible for
1) Traders?
2) Investors?


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## Grinder (11 July 2009)

It puzzles me how the ATO is so flippant when legitament queries are raised and refuses to set up definitive guidelines on all matters concerning their classifications. Surely it is not too difficult for them to lay down specific rules to clear up the grey areas.


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## So_Cynical (11 July 2009)

jono1887 said:


> Are late fees (like when you put the money in your trading account a day late with comsec) tax deductible for
> 1) Traders?
> 2) Investors?




I would be amazed if they were not deductible in some way.


Would also think that anyone that considers themselves a trader would have a ABN 
(Australian business number) and would be claiming GST from brokerage etc.


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## Krusty the Klown (11 July 2009)

jono1887 said:


> Are late fees (like when you put the money in your trading account a day late with comsec) tax deductible for
> 1) Traders?
> 2) Investors?




Yes they are, any reasonable expense incurred in generating assessable income is deductible.


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## jono1887 (12 July 2009)

Krusty the Klown said:


> Yes they are, any reasonable expense incurred in generating assessable income is deductible.




thanks


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## rock86 (17 July 2009)

Late fees, in fact any account keeping fees that result to your investments in shares, and in turn assessable income are deductible. However as mentioned above, brokerage fees are not deductible but form part of your cost base for CGT purposes


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## jono1887 (17 July 2009)

rock86 said:


> Late fees, in fact any account keeping fees that result to your investments in shares, and in turn assessable income are deductible. However as mentioned above, brokerage fees are not deductible but form part of your cost base for CGT purposes




So are printing, photocopying, ink and paper expenses deductible as well?


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## rock86 (17 July 2009)

jono1887 said:


> So are printing, photocopying, ink and paper expenses deductible as well?




If you can show that they were necessary in producing your income (here, through shares) then yes they are deductible


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## jono1887 (17 July 2009)

rock86 said:


> If you can show that they were necessary in producing your income (here, through shares) then yes they are deductible




Is 'record keeping' a good enough excuse?


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## rock86 (17 July 2009)

jono1887 said:


> Is 'record keeping' a good enough excuse?




Thats a tough one but reading 'You and Your Shares' from the tax office, here's the link if ya wanna take a read
http://www.ato.gov.au/content/downloads/IND00191825n26320609.pdf It to me reads as if you would be able to say 'record keeping' is a good enough excuse.

I had a little smile on my face after reading some of the things that are deductible, eg. the depreciation of my computer and internet I use for my investments, being a grad accountant I'm still learning.


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## Krusty the Klown (17 July 2009)

jono1887 said:


> Is 'record keeping' a good enough excuse?




Definitely. 

The company shares you are holding, should be producing assessable income and distributing dividends (assessable income to you) and hopefully franking credits to you. 

You need to be able to prove to the ATO what income and tax has been paid on your return. Hence you should keep records of all these transactions. In fact record keeping is MANDATORY. It is a necessary expense to manage your share holdings and is therefore deductible. It is illegal to claim  expenses as a deduction _without proof_, if total deductions are above $300. 

Your record keeping is your proof.

Keep in mind that if you use your ink and printer for private purposes, then you can only claim a % of the expense as a deduction.

The ATO absolutely loves people who keep meticulous records.


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## jono1887 (20 July 2009)

Are textbooks for an economics degree tax deductable for share trading based on 'self-education'??


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## Julia (20 July 2009)

jono1887 said:


> Are textbooks for an economics degree tax deductable for share trading based on 'self-education'??




Wasn't there a case a couple of months ago where someone on Youth Allowance was able to claim quite a decent amount for text books?
I remember it was in the news media and we did discuss it.

I once got away with claiming the expenses of my dog, i.e. the purchase cost of the dog (substantial), all the vet treatment and food etc for a year, on the basis that she was protection for the drugs I was keeping in the car and in my home.   

It must have been a different person doing the assessments the following year, because it didn't work twice.


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## rock86 (20 July 2009)

jono1887 said:


> Are textbooks for an economics degree tax deductable for share trading based on 'self-education'??




Textbooks for an economics degree are not deductible unless this degree relates to your current employment, and where the education will further your employment (eg. increase in salary). If this is so, then the textbooks will be deductible.



Julia said:


> Wasn't there a case a couple of months ago where someone on Youth Allowance was able to claim quite a decent amount for text books?
> I remember it was in the news media and we did discuss it.
> 
> I once got away with claiming the expenses of my dog, i.e. the purchase cost of the dog (substantial), all the vet treatment and food etc for a year, on the basis that she was protection for the drugs I was keeping in the car and in my home.
> ...




The women a few months ago won a case where she was able to claim all her university expenses (textbooks etc.) as she argued that as Youth Allowance is assessable income and to be elgible for youth allowance you must meet certain conditions, the main one being studying; that expenses incurred due to studying should be deductible as these expenses are necessary for you to 'earn' your youth allowance. So you may be able to claim the textbooks this way if you receive Youth Allowance.


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## beerwm (20 July 2009)

jono1887 said:


> Are textbooks for an economics degree tax deductable for share trading based on 'self-education'??






rock86 said:


> Textbooks for an economics degree are not deductible unless this degree relates to your current employment, and where the education will further your employment (eg. increase in salary). If this is so, then the textbooks will be deductible.




In etax, sections D4, D5

it specifies 'work as an employee'
---is employment classified as self-employed trader?
:. deductions such as; computer, books, software

or am i missing another section.

thanks


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## rock86 (21 July 2009)

beerwm said:


> In etax, sections D4, D5
> 
> it specifies 'work as an employee'
> ---is employment classified as self-employed trader?
> ...




If you were a self employed trader, where your primary business is trading, you would usually have a business name, ABN etc. Exactly like subbie's etc.


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## jono1887 (21 July 2009)

rock86 said:


> Textbooks for an economics degree are not deductible unless this degree relates to your current employment, and where the education will further your employment (eg. increase in salary). If this is so, then the textbooks will be deductible.




Well, im assuming that increasing my education of the economy, finance systems ect ect will be able to further increase my income from share trading in the future... so would they be considered tax deductable?


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## Krusty the Klown (21 July 2009)

jono1887 said:


> Well, im assuming that increasing my education of the economy, finance systems ect ect will be able to further increase my income from share trading in the future... so would they be considered tax deductable?




Possibly.... Sometimes yes, sometimes no.

Cryptic enough?????  

Sometimes your deductions might be allowed if audited, other times disallowed. It depends on the tax assessor. It depends on your _individual_ circumstances if you are audited.

Point being, there is a lot of grey areas in tax law - this is one. If it's not your principle source of income your chances would diminish. If not, you can always appeal.


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## jono1887 (21 July 2009)

So how do I fill up my tax return?
Do I put the profits from my trades under normal income? or capital gains?

And how do deductions work? I know theres a place where I write in the total deduction. But do I mail in my reciepts as well? And where do I write the reason for each deduction?


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## Krusty the Klown (22 July 2009)

jono1887 said:


> So how do I fill up my tax return?
> Do I put the profits from my trades under normal income? or capital gains?
> 
> And how do deductions work? I know theres a place where I write in the total deduction. But do I mail in my reciepts as well? And where do I write the reason for each deduction?




You really should see a tax adviser. Most people declare them as capital gains, either way you will pay the same amount of tax.

You don't need to send in your receipts, just keep them for 5 years. You don't need to give reasons for your deductions, just input total deductions for each category. You only need to be able to justify a deduction if you get audited.


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## cutz (22 July 2009)

jono1887 said:


> So how do I fill up my tax return?
> Do I put the profits from my trades under normal income? or capital gains?
> 
> And how do deductions work? I know theres a place where I write in the total deduction. But do I mail in my reciepts as well? And where do I write the reason for each deduction?




Jono,

What are you making in your normal income and what are you pulling from trading, give us a clearer picture, although i'm not a tax specialist i may be able to help you out with a suggestion to take to your tax agent.

As far as expenses go i normally run a spreadsheet detailing everything to take to my accountant, i store all receipts in case i receive an audit.

Personally it sounds like you may not be classified as a trader.


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## jono1887 (22 July 2009)

cutz said:


> Jono,
> 
> What are you making in your normal income and what are you pulling from trading, give us a clearer picture, although i'm not a tax specialist i may be able to help you out with a suggestion to take to your tax agent.
> 
> ...




Ok, well I've only made 16 trades (32 buy and sell transactions) since I started in Nov. Average trade was 10k and made an average of 10% per trade that were held for anywhere between 1-5 weeks. Made a total of 16k from trades, 1k from interest in various accounts and term deposits and $800 from real work [pizza delivery]...

The deductions that I want to make are photocopying, ink, economics text books (for econ degree - as it will 'increase my income in the furture') and my ipod touch - which I use to monitor stocks and make trades when I'm in uni.


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## cutz (22 July 2009)

Hi Jono,

In your situation i suspect that capital gain is more appropriate, but either way as Krusty suggested you will be paying about the same amount of tax anyway.

As far as deductions go, i can't see a problem with your iphone, your using it for trading purposes. Uni text books, could be pushing it but that's your and your accountant's call.

Good luck with it, i must admit though the rules are pretty vague when it comes to trading.


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## jonnohowe (22 July 2009)

Text Books:

You can claim if they are courses which will further your ability to obtain work in that specific field. Because you're self employed may be a little difficult considering you aren't a professional, just a trader. 

Brokerage Fees

No.


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## jono1887 (22 July 2009)

jonnohowe said:


> Text Books:
> 
> You can claim if they are courses which will further your ability to obtain work in that specific field. Because you're self employed may be a little difficult considering you aren't a professional, just a trader.
> 
> ...




Why not brokerage fees?m arent they a necessary cost in obtaining my income from shares?


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## cutz (22 July 2009)

Jono,

Your cost base on stock purchases includes brokerage+fees, proceeds from sales have brokerage+fees deducted.

Suggest getting a copy of the taxpayer's guide, it good reading + it's tax deductible.


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## rock86 (23 July 2009)

jono1887 said:


> Ok, well I've only made 16 trades (32 buy and sell transactions) since I started in Nov. Average trade was 10k and made an average of 10% per trade that were held for anywhere between 1-5 weeks. Made a total of 16k from trades, 1k from interest in various accounts and term deposits and $800 from real work [pizza delivery]...
> 
> The deductions that I want to make are photocopying, ink, economics text books (for econ degree - as it will 'increase my income in the furture') and my ipod touch - which I use to monitor stocks and make trades when I'm in uni.




I agree with Cutz and Krusty, you would be using CGT for your share trading; to me your trades were still only investments, if you were a trader then their would be more trades and you would not be holding onto the assets for as long as you have .

IPod- Yes: but only a prercentage. You can only claim the amount you used for trading stocks, you cannot claim all of it as (I'm guessing) you used it for listening to music etc. their for you cannot claim your private use of an asset. Also you cannot claim the cost of purchase of the IPod, as it is an asset, you must claim the depreciation of the asset; however if you are renting etc. you can claim your repayments of an asset.

Photocopying and Ink etc.- Yes: as if your keeping records, performing calculations, printing out info on shers etc. they are all deductible as they are necessary for your investments and therefore necessary in generating your income.

Textbooks- No: Your not a proffesional trader or have a current job in trading; therefore this degree at the end of the day may allow you to _obtain _employment in this area, and therefore you cannot claim any fees that are relted to this course.

Brokerage fees- No: they make up the cost base of your shares (as Cutz said) and are included when working out your Capital Gain/Loss on your shares.

Hope I helped


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## jono1887 (23 July 2009)

rock86 said:


> I agree with Cutz and Krusty, you would be using CGT for your share trading; to me your trades were still only investments, if you were a trader then their would be more trades and you would not be holding onto the assets for as long as you have .
> 
> IPod- Yes: but only a prercentage. You can only claim the amount you used for trading stocks, you cannot claim all of it as (I'm guessing) you used it for listening to music etc. their for you cannot claim your private use of an asset. Also you cannot claim the cost of purchase of the IPod, as it is an asset, you must claim the depreciation of the asset; however if you are *renting *etc. you can claim your repayments of an asset.
> 
> ...




So with the ipod, I can only claim the depreciation of the asset and only a % of this depreciation?
With the renting - were you referring to the renting of the capital (ipod) or renting as in accommodation?



> Example 1 – Share trader
> 
> Molly is an electrical engineer. After seeing a television program, Molly decides to become involved in share trading activities.
> 
> ...




From this example from the ATO, it seems the main determining factor is the purpose of puchasing the shares. The traders purpose was to obtain profit whereas the investors purpose of obtaining dividend income. My trades did not have any intention to gain dividend income and were mainly for the purpose of obtaining profit. And the no. of trades made by the 'trader' in the example is 60 over 12 months where I made 32 over 7-8 months... I don't think the lack of number of trades makes me an investor over a trader.


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## Krusty the Klown (23 July 2009)

Good examples, one thing to keep in mind too, is are you going to keep on doing the share trading? One thing the ATO specifies with a business enterprise is _will this be an ongoing concern?_

You could go either way - either use the CGT method or ordinary income. Possibly the only benefit of one over the other is, that if you use the CGT method, the ATO won't question anything if you get audited.

With the IPOD, you have to separate which % of use was for business use and which % you used for private purposes (listening to music) and declare that business % of the depreciation as an expense. As it is classed as plant and equipment you cannot claim the purchase cost as a deduction - only depreciate the total purchase price over the asset's useful life. As it is a computer it will be depreciable over three years. 

So let's say you use the IPOD 20% of time for share trading and 80% for music. You can claim 20% of one third of the purchase price each year for depreciation as a deduction.

In terms of renting. If you lease plant and equipment you cannot claim depreciation as an expense as you don't own the asset. You can claim the lease or RENT payments as an expense deduction. Leasing is the same as renting.


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## Taltan (23 July 2009)

You havnt held the shares for twelve months so you do not get the 50% CGT discount so it is irrelvant how you classify yourself, the tax will be exactly the same


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## jono1887 (23 July 2009)

Taltan said:


> You havnt held the shares for twelve months so you do not get the 50% CGT discount so it is irrelvant how you classify yourself, the tax will be exactly the same




but if I treat them as CGT, I wont be able to deduct the ipod and record keeping expenses can I?


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## Krusty the Klown (23 July 2009)

jono1887 said:


> but if I treat them as CGT, I wont be able to deduct the ipod and record keeping expenses can I?




You can, you can deduct them as an expense against "ordinary" income. The ATO allows this.


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## wipz (23 July 2009)

rock86 said:


> I agree with Cutz and Krusty, you would be using CGT for your share trading; to me your trades were still only investments, if you were a trader then their would be more trades and you would not be holding onto the assets for as long as you have .
> 
> IPod- Yes: but only a prercentage. You can only claim the amount you used for trading stocks, you cannot claim all of it as (I'm guessing) you used it for listening to music etc. their for you cannot claim your private use of an asset. Also you cannot claim the cost of purchase of the IPod, as it is an asset, you must claim the depreciation of the asset; however if you are renting etc. you can claim your repayments of an asset.
> 
> Photocopying and Ink etc.- Yes: as if your keeping records, performing calculations, printing out info on shers etc. they are all deductible as they are necessary for your investments and therefore necessary in generating your income.




Sorry mate, i think you are wrong on this one. 
If he is not carrying on a business of share trading then he cannot claim any of the above.

If the shares are held as CGT assets, then you need to consider whether these costs will form part of the cost base of the CGT asset under subdiv 110A of income tax act 1997 and in this case they don't.

Cheers


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## wipz (23 July 2009)

Krusty the Klown said:


> You can, you can deduct them as an expense against "ordinary" income. The ATO allows this.




The ATO would allow this if they relate to his source of income - in this case pizza delivery, which is not related.
As his shares are not a source of ordinary income (being a CGT gain/loss) you cannot claim the expenses as a deduction and you must look to the CGT rules in order to determine whether or not these expenses can form part of the cost base and in turn give tax relief - in this case i doubt they would be acceptable.
Every deduction must be related to an source of income and in this case there is no relevant source to claim against.

Cheers


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## wipz (23 July 2009)

jono1887 said:


> So how do I fill up my tax return?
> Do I put the profits from my trades under normal income? or capital gains?
> 
> And how do deductions work? I know theres a place where I write in the total deduction. But do I mail in my reciepts as well? And where do I write the reason for each deduction?




The way i see it is this:
You will be taxed exactly the same in each case HOWEVER there is a definate benefit if you take the position of a SHARE TRADER as you will be able to claim many of your expenses vs if the shares were held on capital account.
If you can come up with and draft an arguable position paper on why you are a share trader (refer to ato website for guidance and examples) you will pretty much beable to claim all of your expenses.  I note that this is extremely hard and I doubt in your situation that you are.
I would play it safe mate but before you start you need to make a call on whether they will be capital or on revenue account (ie. capital gain vs share trader revenue). Note that alot of people have tried to be "share traders" and got screwed so be careful and dont do anything stupid.

As for your questions as to the receipts - it is a self assess system, they don't check however you need to keep them as you can be audited up to 7 years after the tax return is lodged.  Just put a lump sum in your tax return and have an excel spreadsheet with all your backup to justify the amount claimed etc you get my drift.


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## Krusty the Klown (23 July 2009)

wipz said:


> The ATO would allow this if they relate to his source of income - in this case pizza delivery, which is not related.
> As his shares are not a source of ordinary income (being a CGT gain/loss) you cannot claim the expenses as a deduction and you must look to the CGT rules in order to determine whether or not these expenses can form part of the cost base and in turn give tax relief - in this case i doubt they would be acceptable.
> Every deduction must be related to an source of income and in this case there is no relevant source to claim against.
> 
> Cheers




However, if using the CGT provisions these expenses could be added to the cost base as third element costs - costs incurred in owning or maintaining an asset.


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## beerwm (23 July 2009)

Krusty the Klown said:


> However, if using the CGT provisions these expenses could be added to the cost base as third element costs - costs incurred in owning or maintaining an asset.




how does , software apply [amibroker]

and trading books [not uni textbooks]

great thread btw,


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## rock86 (23 July 2009)

wipz said:


> Sorry mate, i think you are wrong on this one.
> If he is not carrying on a business of share trading then he cannot claim any of the above.
> 
> If the shares are held as CGT assets, then you need to consider whether these costs will form part of the cost base of the CGT asset under subdiv 110A of income tax act 1997 and in this case they don't.
> ...




Don't agree hey, sorry

Here is a extract from the ATO website 
http://www.ato.gov.au/individuals/content.asp?doc=/content/00191825.htm&page=13&H13



> If you invest in shares, you may be able to claim as a deduction from assessable income certain expenditure incurred in deriving your income from those shares. The following are examples of expenses that may be deductible.
> 
> *Management fees*
> 
> ...




So from my view, most investors will or are likely to receive dividend income from their shares, this being assessable income, any expenses incurred in deriving this assessable income are deductible for taxation purposes.

Cheers


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## wipz (23 July 2009)

I agree with you rock, but you're assuming he has received dividend income and I don't think he has.
You'd also consider the type of stock also, i.e. if he has traded juniors then you can't really argue that you brought for dividend income.

Cheers mate


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## Krusty the Klown (23 July 2009)

wipz said:


> I agree with you rock, but you're assuming he has received dividend income and I don't think he has.
> You'd also consider the type of stock also, i.e. if he has traded juniors then you can't really argue that you brought for dividend income.
> 
> Cheers mate




I'm going to go with rock here, these expenses are not of a capital nature, so they can be claimed as an ordinary deduction.

These are expenses incurred in generating assessable income.



beerwm said:


> how does , software apply [amibroker]
> 
> and trading books [not uni textbooks]
> 
> great thread btw,




These two can be claimed as expenses against ordinary income for the same reasons. They are not tied to the purchase or sale of any one capital item.


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## Chorlton (24 July 2009)

Hello All,

I've been reading this thread with interest and have a question.

I have recently sold some shares but have never received any dividends from them given the time period in which they were held. Consequently, the gains from these were going to be recorded as a capital gain on my tax return.

However, in the natural course of investing I have obviously incurred costs such as the purchase of new charting Software, portfolio management software, data fees, internet fees to access the data and place orders with my Broker, etc, etc. Consequently, how would I go about deducting such costs (assuming that they can be deducted).  In my mind, without incurring these costs I would have never been able to invest in the first place (and make the gain in this case) so these costs ahould be deductable in some way.

I understand that the cost of brokerage, etc can be simply added to the capital base of each trade and the gain calculated on the difference but how would I specifically go about recording the other costs mentioned above?

Any help appreciated....


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## Krusty the Klown (24 July 2009)

Hey Chorlton

All the mentioned expenses apart from brokerage and internet fees are deductible.

As you said, the brokerage is added to the cost base of the assets sold.

For your internet costs, you will have to work out the % of time you spent on trading or investing and then the % of time used for personal use. You can claim the % of usage for trading as an ordinary deduction.

It doesn't matter if you did not receive dividends, as a capital gain is assessable income. 

I am presuming that making capital gains and the receipt of dividends when available was your purpose for buying the shares. That purpose makes your expenses deductible.

Have fun!!!!


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## rock86 (25 July 2009)

Krusty the Klown said:


> Hey Chorlton
> 
> All the mentioned expenses apart from brokerage and internet fees are deductible.
> 
> ...




Hit the nail on the head

ps. This type of thread could nearly be a sticky


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## beerwm (25 July 2009)

when you talk about 'ordinary deductions'

are you talking about.

etax Deductions- Item15
-section 40-880 deductions
or
-other deductions


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## rock86 (25 July 2009)

beerwm said:


> when you talk about 'ordinary deductions'
> 
> are you talking about.
> 
> ...




Do ya reckon you could elaborate a bit further on that, where was ordinary deductions mentioned just so I can get a scope on it


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## johnnyg (25 July 2009)

Don't forget about deducting the cost of your home office if thats where you trade from.

I'm having a little trouble with mine, so ill give the ATO a ring on Monday.


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## beerwm (25 July 2009)

Krusty the Klown said:


> For your internet costs, you will have to work out the % of time you spent on trading or investing and then the % of time used for personal use. You can claim the % of usage for trading as an *ordinary deduction.*




just there rock, thanks

edit: here too


> how does , software apply [amibroker]
> 
> and trading books [not uni textbooks]





> These two can be claimed as *expenses against ordinary income* for the same reasons. They are not tied to the purchase or sale of any one capital item.


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## Krusty the Klown (26 July 2009)

Please excuse my use of jargon. 

By _ordinary_ deduction I mean _general_ deduction and not _specific_ deduction. My use of the word ordinary here is in relation to _ordinary income_ as opposed to _statutory income._

I was also trying to explain the difference between an expense that can be used a a general or ordinary deduction, as opposed to an expense that has to be added to the cost base of an asset.

There are two types of deductions _general_ and _specific._

A general deduction is any expense used to generate assessable income. The laws do not specifically say ink used for printing is deductible, but because it was used in the activity of generating assessable income it is.

A specific deduction is any deduction stated to be deductible by provisions of ITAA 1936 & 1997. ie some specific item is deductible because the law actually states it is. For example use of one of the four methods for claiming vehicle expenses related to employment. Depreciation of a capital asset is another example.


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## SilverRanger (28 July 2009)

I had two hefty direct debit rejection fee from CommSec last FY, is that tax deductible in any way?


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## rock86 (28 July 2009)

SilverRanger said:


> I had two hefty direct debit rejection fee from CommSec last FY, is that tax deductible in any way?




I would say they are, if you incurred them in buying/selling your shares (which I'm guessing you eventually did) they would be deductible, they are just like late fees etc. Aren't 100% sure though


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## Krusty the Klown (28 July 2009)

100% deductible.

The question is in what manner can they be claimed?

If the fees can be attributed to the purchase of a certain parcel of shares then they must be added to the cost base of that asset for CGT purposes.

Any expense directly attributable to a capital item must be added to the cost base (including margin loan interest!!!!!).

If the purchase did not go through and no asset was purchased, then they can be claimed as an administration expense or general deduction in the activity of generating assessable income.


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## SilverRanger (28 July 2009)

Thanks for the info Krusty, but I am not sure about margin loan interest adding to the cost base though, looking at http://www.ato.gov.au/content/downloads/IND00191825n26320609.pdf it seems like margin loan interest is used to offset dividend (ie income) 
Maybe I am missing something?


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## jono1887 (29 July 2009)

SilverRanger said:


> Thanks for the info Krusty, but I am not sure about margin loan interest adding to the cost base though, looking at http://www.ato.gov.au/content/downloads/IND00191825n26320609.pdf it seems like margin loan interest is used to offset dividend (ie income)
> Maybe I am missing something?




I just read this a few days ago... does this mean we are only able to make deductions on our dividends and not on the capital gains?


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## Krusty the Klown (29 July 2009)

SilverRanger said:


> Thanks for the info Krusty, but I am not sure about margin loan interest adding to the cost base though, looking at http://www.ato.gov.au/content/downloads/IND00191825n26320609.pdf it seems like margin loan interest is used to offset dividend (ie income)
> Maybe I am missing something?




No, you are correct, humble apologies. 

If you received dividends (ordinary income) then you can claim the margin loan interest as a general deduction. If no ordinary income is received then add the interest to the cost base.

Either way the end result is the same.

I was thinking in terms of capital assets in general when writing that line. For example if you buy a piece of equipment for $50K with a loan, use it, then sell it for $75K, you add the interest on to the cost base to claim the deductible expense.



jono1887 said:


> I just read this a few days ago... does this mean we are only able to make deductions on our dividends and not on the capital gains?




No, it depends on the expense. It's complicated, and depends on your situation. I don't have the time now, but will come back and elaborate.


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## jono1887 (29 July 2009)

Krusty the Klown said:


> No, it depends on the expense. It's complicated, and depends on your situation. I don't have the time now, but will come back and elaborate.




ok... ill be waiting


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## Krusty the Klown (30 July 2009)

jono1887 said:


> I just read this a few days ago... does this mean we are only able to make deductions on our dividends and not on the capital gains?




Ok, any reasonable expense incurred while generating assessable income is deductible in some way, by reasonable I mean directly related, for example you can't claim aspirin because doing paperwork gives you a headache!

The key is _how to apply_ the deduction. The deduction can be deducted against either _ordinary_ or _statutory_ income.

_Ordinary_ income is of a repetitive, regular, periodic and similar nature. Like daily sales for a business, or wages or salary. It is income that is generally accepted by society as being income and subject to income tax.

_Statutory_ income is assessable income by way of a government passing a law that says it is assessable income. And here we are talking about one off _extra-ordinary_ transactions such as a capital gain on disposal of an asset. Something that you don't receive every day like ordinary income.

A capital gain only became assessable in 1985 (thanks, Mr Keating!).

The simplest way to approach a deduction is to match the deductible expense to the source of assessable income: 

          - If the expense was incurred while generating ordinary income, then apply the deduction to ordinary income and claim as a general deduction.

          - If the the expense was incurred in the act of generating statutory income then the deduction must be applied to statutory income and added to the capital cost base.

Generally, however, administration expenses incurred while generating statutory income (such as regular share trading) can be claimed as a general deduction as you cannot tie these expenses to one particular asset.

For CGT purposes the cost base of an asset consists of 5 elements:

_First element_ - Acquisition cost: the actual price paid for the asset, or market value when the asset was received.

_Second element_ - Incidental costs: any cost involved in the purchase or sale of the asset. Adviser fees, stamp duty, legal fees, marketing expense, valuations, brokerage, conveyancing, loan fees

_Third element_ - Ownership costs: the costs involved in keeping, maintaining or protecting the asset. Insurance, interest, land tax, rates, repairs and maintenance, inspection costs, travel and accommodation expense

_Fourth element_ - Enhancement costs. Any capital improvements. Obviously this is not relevant to this forum, but applies to real property and physical assets, such as an extra room on a building, or a dwelling on land.

_Fifth element_ - Sci-Fi movie starring Bruce Willis, no just kidding - Title costs. Any cost involved in establishing, preserving or defending legal ownership of the asset.

As the tax laws are meant to be "catch all" provisions, meaning they try to cover every possible situtation, there is always going to be some ambiguity, such as a "what if?" or a "yeah but". So it is possible that you could apply a deduction to either ordinary or statutory income, depending on your situation, as mentioned earlier with margin loan interest.

There may be a case where you trade the same share several times, but one time you receive dividends while holding, you can claim margin loan interest as a general deduction as you received ordinary income, but in another trade you received nothing - then you can add the interest to your cost base.

Having said that, if you hold a share and incur margin loan interest, and the company does not issue a dividend that does not mean you ALWAYS have to apply the interest to the cost base. As long as there is a _reasonable likelihood or expectation_ that a company will issue dividends then you can claim the interest as a general deduction. It comes down to how YOU interpret the law.

Another way to think of the tax laws, is to keep in mind something you hear in legal circles. Sometimes you go and see a lawyer for an "opinion" on how the law relates to your situation. Tax law is no different. As long as you stay within the law, the laws may relate to you very differently to someone else.

Hope this helps.


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## Chorlton (30 July 2009)

Krusty the Klown said:


> For your internet costs, you will have to work out the % of time you spent on trading or investing and then the % of time used for personal use. You can claim the % of usage for trading as an ordinary deduction.
> 
> It doesn't matter if you did not receive dividends, as a capital gain is assessable income.




Hi Krusty,

Some great replies on this thread from you !!  Can I ask what your profession is?  Are you an Accountant / Tax Advisor or just someone who obviously has a very good understanding of the current system? ;-)

One question I do have regarding your reply above about claiming Internet / Trading Software/ etc costs as an ordinary deduction is what do I offset these costs against?  If I haven't received any dividends (and as my primary source of income is not related to trading) can I offset these costs against any Capital Gains I have made in the same year?

If so, in its simplest form is it just a case of:

Gross Capital Gain for tax year = $x
Internet / Software Costs for Tax year = $y
Net Capital Gain for tax year = $x - $y

Sorry for the basic question.....


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## Krusty the Klown (30 July 2009)

Thanks Chorlton, yes I am an accountant (with too much time on his hands!).

In terms of your mentioned expenses these can be claimed as general deductions. These expenses - internet fees and trading software cannot be attributed _solely_ to one capital asset, so they can be claimed as administration expenses.

You incurred these costs while generating assessable income, be it capital gain or ordinary income, and as a home trader, you cannot trade without them, so you can't apply them to any one asset as it is an ongoing expense. For example what about when you are not holding any shares at all at one point in time.

Having said that however, there is an argument, that the software itself could be a capital asset in its own right. So instead of claiming a deduction in one year, you claim depreciation over a number of years. Again a murky one, if it not very expensive, then a one-off deduction should be OK. But if you spent $25K on purpose built software, that would probably have to be depreciated over successive periods.

In terms of deductions keep in mind any expense that is *SOLELY* attributable to an identifiable asset, then use the capital gains provisions. If the expense is incurred  managing *A NUMBER* of assets (share parcels) then it is an administration expense and the provisions for general deductions apply - including depreciation of your computer.

In summary, administration expenses for share trading if only capital gains are generated can be claimed as a general deduction against ordinary or wage or salary income.


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## MITCH027 (19 December 2009)

Hi all,

If anyone is interested:

Taken from the ATO website - under NTLG Minutes 27 March 2009 (can't link directly as I have less than 5 posts)

"Post meeting update

The following response to the agenda topic was forwarded to NTLG members on 7 May 2009.

The Tax Office accepts that brokerage costs are deductible under section 8-1 of the ITAA 1997 when incurred by an Australian resident employee in selling qualifying shares or rights in circumstances where the discount is included in the employee’s assessable income under the provisions of section 139B(3) of the ITAA 1936 and the qualifying shares or rights are disposed of within 30 days of the cessation time (section 139CC(3))."

___

However I assume that if this is the case, when you are calculating your gains during the year, brokerage fees cannot be included in your cost base in transaction costs. (this might be problematic if your broker is automatically including brokerage fees in the cost base already)

(In other words this probably has very little effect over the course of a financial year as you're getting the deduction one way or another)


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## Krusty the Klown (19 December 2009)

Hey Mitch

The quote seems to be referring to an employee share issue and deductibility on cessation of employment - without further clarification of course.

The ATO quote is quite specific and not applicable to the ordinary share holder - as opposed to an employee share holder.

Definitely relevant for people in that situation, but much more information  and more context is needed.

Cheers

Krusty


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## matt88 (8 October 2012)

*Share Trader: Calculating Brokerage Deductions for Tax Return*

Ive recently changed accountants whilst self-employed as a share trader and am now getting conflicting advice from my new accountant.

Perhaps someone with accounting experience could reply to the following simple example of how to apply brokerage deductions.

Say I buy $10,000 worth of shares at a cost (brokerage) of $100 - I actually spend $10,100. In the same financial year, I sell the shares for $12,120 at a cost of $120, realising $12,000. 

It has cost me $220 to buy and sell - this is my deduction, but what is the "profit" figure this is deducted from?

My previous accountant deducted brokerage from "profit" of $2,020 (12,120 - 10,100).

My new accountant proposes to deduct brokerage from "profit" of $2,000 (12,000 - 10,000)

Two questions:
1. Who is correct?
2. Someone is making a mistake, who bears the liability for this in the end? The client?

Thanks, 

Matt


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## skc (8 October 2012)

*Re: Share Trader: Calculating Brokerage Deductions for Tax Return*



matt88 said:


> Ive recently changed accountants whilst self-employed as a share trader and am now getting conflicting advice from my new accountant.
> 
> Perhaps someone with accounting experience could reply to the following simple example of how to apply brokerage deductions.
> 
> ...




 What? They are both wrong! Your gross profit is $12120 - $10000 =$2120. Your brokerage costs total $220 so net taxable income is $1900. 

This is not even accounting, this is barely grade 3 maths. In both cases they have double-deducted one side of the commission. If they are my accountants i would slap them in the face and demand to see proof that they graduated from primary school  

If they over deducted for you then you are liable to pay any additional tax. But there are grounds for them to be liable for any penalty or additional expense incurred (like hiring a real accountant to re-do the tax.


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## drsmith (8 October 2012)

*Re: Share Trader: Calculating Brokerage Deductions for Tax Return*



skc said:


> What? They are both wrong! Your gross profit is $12120 - $10000 =$2120. Your brokerage costs total $220 so net taxable income is $1900.



From someone who graduated primary school (I still have the certificate to prove it), that at least makes sense.


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## tinhat (9 October 2012)

*Re: Share Trader: Calculating Brokerage Deductions for Tax Return*



matt88 said:


> Ive recently changed accountants whilst self-employed as a share trader and am now getting conflicting advice from my new accountant.
> 
> Perhaps someone with accounting experience could reply to the following simple example of how to apply brokerage deductions.
> 
> ...






skc said:


> What? They are both wrong! Your gross profit is $12120 - $10000 =$2120. Your brokerage costs total $220 so net taxable income is $1900.
> 
> This is not even accounting, this is barely grade 3 maths. In both cases they have double-deducted one side of the commission. If they are my accountants i would slap them in the face and demand to see proof that they graduated from primary school
> 
> If they over deducted for you then you are liable to pay any additional tax. But there are grounds for them to be liable for any penalty or additional expense incurred (like hiring a real accountant to re-do the tax.




I look at it slightly differently (but same end figure) from the point of view of the shares being an asset from a capital gains tax perspective:

Total cost of acquiring the asset (asset cost base) is $10,100
Net proceeds of sale of the asset (triggering the CGT event) is $12,000
Capital gain is $1,900

If however you are share trading as an occupation (which matt88 says he is) and you are registered for GST then I would imagine you would need to account for things differently because you would be claiming a credit (partial credit anyway if you meet the financial acquisitions threshold) for the GST paid on your brokerage. See http://www.taxreporter.com.au/articles/tax-matters/your-questions-to-atr Also:
http://www.ato.gov.au/superfunds/Pr...nds&doc=/content/00144317.htm&page=5#P65_3228
http://law.ato.gov.au/atolaw/view.htm?docid=GST/GSTR20039/NAT/ATO/00001

I would imagine then that you would deduct brokerage as an expense as there would be no CGT accounting.

Technically a SMSF trustee can register for GST and claim partial credit on brokerage, but in my case it is just not worth the hassle for a couple of hundred dollars a year. It's all very technical and would require additional accounting advice.


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## pixel (9 October 2012)

I have to agree:
If it was my accountant, I'd look for a new one: one who has mastered the basics of arithmetic.
You bought the shares for $10,100 and sold them for $12,000 - both net of costs. Makes your profit $1,900.

I disagree however with tinhat about GST being too much hassle for a few 100 bucks.
(a) It doesn't cost anything to register for GST (assuming you qualify).
(b) Provided you keep proper records of your trades including GST in brokerage, calculating G13 in your quarterly BAS is a cinch.

As soon as the refund comes in - usually a week after I submitted BAS - I enter the amount as a deduction from my total business costs. That's all there is to it.


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