ATO Tax!

Hi All,

I've got a couple of tax related questions rolling around my head which I'm hoping to get clarity on before I talk to a tax accountant in a couple of months time.

Before I start; I believe laws exist regarding unlicensed people providing financial and/ or tax advice? So if answering the following questions may break those laws, then please let me know and don't answer them!

With that being said, I'm interested to hear general information on the following points which may or may not be relevant to someone in my situation starting out. Again, I'm hoping to find general information, rather than seeking financial advice, so hopefully we'll be ok!

Here we go...

1,) Given that the requirement of a business to register GST with the ATO is $75,000 turnover per year, and that a day trader with a 20k trading balance could easily turn this amount over multiple times in a given day/week/month (assuming they don't blow it all after the first few trades!); even if they don't make a profit; does this mean it would be likely that they would be required to register for GST?

2,) Are there any essential things that a new day trader should do from a tax perspective before beginning to trade? Ie; should they absolutely get an ABN? Anything they should do to avoid withholding tax? Anything else come to mind?

3,) How do people keep records of their trades if they are day trading / making numerous and frequent trades? Do they have to manually make a note somewhere, or is there generally some kind a reporting function with most trading software platforms?

4,) Can you be considered both a trader; and an investor, for tax purposes with the ATO? Ie, Be taxed as an investor for longer term investments; and taxed as a trader for frequent trades?

Thank you

Fi

Fiona96 said:

Be taxed as an investor for longer term investments; and taxed as a trader for frequent trades?

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please seek expert advice on this , BUT your long term investments might be put into an SMSF

just a suggestion to ask your expert about

divs4ever said:

please seek expert advice on this , BUT your long term investments might be put into an SMSF

just a suggestion to ask your expert about

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Thanks Divs

At this stage my 'long term assets' are very hypothetical ; but I'll talk to an advisor about that idea at some point.

Regarding point 4 from my post; I was probably more thinking if say, I bought and held a stock for a year, would it be possible to lodge for investor tax on that; while also lodging trader tax for all the short term trades. Its probably an advisor question; although reading this back, what I'm describing might be considered having your cake and eating it too?

Fi

Fiona96 said:

Thanks Divs

At this stage my 'long term assets' are very hypothetical ; but I'll talk to an advisor about that idea at some point.

Regarding point 4 from my post; I was probably more thinking if say, I bought and held a stock for a year, would it be possible to lodge for investor tax on that; while also lodging trader tax for all the short term trades. Its probably an advisor question; although reading this back, what I'm describing might be considered having your cake and eating it too?

Fi

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all of your cake might not be possible , but if you share some with ATO it might be possible , but how much do you share , that is where a good professional could help ( and that advice can be tax deductible )

earlier might be better and have all your ducks in line

divs4ever said:

all of your cake might not be possible , but if you share some with ATO it might be possible , but how much do you share , that is where a good professional could help ( and that advice can be tax deductible )

earlier might be better and have all your ducks in line

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What a pity one Mr Kerry packer is no longer with us. His advice would be give as little as possible and then halve it to the ATO.
When that source of income is passed onto the Government of the day, they would only waste it.

farmerge said:

What a pity one Mr Kerry packer is no longer with us. His advice would be give as little as possible and then halve it to the ATO.
When that source of income is passed onto the Government of the day, they would only waste it.

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Almost like the cost of a science degree at college
YouTube

Fiona96 said:

Thanks Divs

At this stage my 'long term assets' are very hypothetical ; but I'll talk to an advisor about that idea at some point.

Regarding point 4 from my post; I was probably more thinking if say, I bought and held a stock for a year, would it be possible to lodge for investor tax on that; while also lodging trader tax for all the short term trades. Its probably an advisor question; although reading this back, what I'm describing might be considered having your cake and eating it too?

Fi

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I separate these in a spreadsheet.
Even better, I have different broker accounts
For me:
Commsec for investing ( I still have stop loss etc)
And Bell direct for systems (trading)
I got ABN for trading and do BAS
This is what I do, not a recommendation...and I am not accountant.
Be aware I believe there is hardly any GST claimable as GST on brokerage can not be claimed ...check with accountant.

Fiona96 said:

Hi All,

I've got a couple of tax related questions rolling around my head which I'm hoping to get clarity on before I talk to a tax accountant in a couple of months time.

Before I start; I believe laws exist regarding unlicensed people providing financial and/ or tax advice? So if answering the following questions may break those laws, then please let me know and don't answer them!

With that being said, I'm interested to hear general information on the following points which may or may not be relevant to someone in my situation starting out. Again, I'm hoping to find general information, rather than seeking financial advice, so hopefully we'll be ok!

Here we go...

1,) Given that the requirement of a business to register GST with the ATO is $75,000 turnover per year, and that a day trader with a 20k trading balance could easily turn this amount over multiple times in a given day/week/month (assuming they don't blow it all after the first few trades!); even if they don't make a profit; does this mean it would be likely that they would be required to register for GST?

2,) Are there any essential things that a new day trader should do from a tax perspective before beginning to trade? Ie; should they absolutely get an ABN? Anything they should do to avoid withholding tax? Anything else come to mind?

3,) How do people keep records of their trades if they are day trading / making numerous and frequent trades? Do they have to manually make a note somewhere, or is there generally some kind a reporting function with most trading software platforms?

4,) Can you be considered both a trader; and an investor, for tax purposes with the ATO? Ie, Be taxed as an investor for longer term investments; and taxed as a trader for frequent trades?

Thank you

Fi

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Hi Fiona96,

Share investing versus share trading​

You can find some very useful information by typing the above into the ATO website.

All the best,
Rob

rnr said:

Hi Fiona96,

Share investing versus share trading​

You can find some very useful information by typing the above into the ATO website.

All the best,
Rob

Click to expand...

Thanks Rob,

I had read that page, I guess my question was; can you be considered both a trader and investor at the same time for different types of investments you may hold at any one given time. After reading that ATO page again, my interpretation is now that it's probably more of a case that no; you can only be considered either one or the other at any given time. Thanks again for your reply

Fi

I'm interested to hear what others have to say regarding my questions, particularly questions 2 & 3 (as I feel the others have been somewhat addressed - thank you @divs4ever , @qldfrog and @rnr !); so if you have experience with this and feel comfortable and willing to reply; please do!

@Fiona96
Firstly, welcome to ASF!
Secondly, great that you want to start on your investment/trading journey.

Re. #2
Starting my stock trading journey in the mid 90's I too grappled with the investor v trader question. I decided I am a passive and long term investor. From that ATO link the salient point is:

A share trader carries on business activities for the purpose of earning income from buying and selling shares.

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I'd say you'll need to make the choice on whether you plan to derive a "realistic" pay packet from share trading.

Re. #3
If you type in Spreadsheets or Record Keeping in the Search function you'll find what you need. Suffice to say come tax time, accurate and precise record keeping is a must!

As we all know, whichever way one decides, all income must be declared and it's up to our individual situation how we minimize the tax burden.
For me, one way is from franking credits received.

Anyway, talking to your financial/tax professional certainly can't hurt. Ultimately, from the information you have gathered and gleaned, the decision will be yours and yours alone to make. The main thing, congrats, you've made a start!

Fiona96 said:

2,) Are there any essential things that a new day trader should do from a tax perspective before beginning to trade? Ie; should they absolutely get an ABN? Anything they should do to avoid withholding tax? Anything else come to mind?

3,) How do people keep records of their trades if they are day trading / making numerous and frequent trades? Do they have to manually make a note somewhere, or is there generally some kind a reporting function with most trading software platforms?

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i do not consider myself a trader , sometimes i may hold a stock for weeks/months before selling out completely , but that decision is not triggered by price , rather a company decision/change of direction , at what price is a secondary decision ( OUT is first , profit/loss is always secondary )

as such my profits/ losses crystallized stay well below ' professional trader' and have no intention of having capital gains in shares as an important part of my income stream

next as an investor i veer towards franking credit paying stocks ( most of the time ) and quote my Tax File Number

also especially my share activity can be measured in transactions per month ( and single digits at that ) rather than per day/week

so the share platforms can cope nicely with my activity records

cheers

Fiona96 said:

Hi All,

I've got a couple of tax related questions rolling around my head which I'm hoping to get clarity on before I talk to a tax accountant in a couple of months time.

Click to expand...

Good questions, Fi. I hope you have taken enough on board to talk with a tax professional sooner rather than later.

It's much easier than trying to unpick errors.

Fiona96 said:

Thanks Rob,

I had read that page, I guess my question was; can you be considered both a trader and investor at the same time for different types of investments you may hold at any one given time. After reading that ATO page again, my interpretation is now that it's probably more of a case that no; you can only be considered either one or the other at any given time. Thanks again for your reply

Fi

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Hi @Fiona96,
Given the interpretation that you have arrived at above, one could / would assume that you could ask your prospective accountant a question along the lines that:- If I wanted to invest & also trade in ASX securities would that be possible if I were to have two brokerage accounts (e.g. Fiona96 Investment a/c and Fiona96 Trading a/c)?
It would be interesting to find out the answer and please do not construe this suggestion as advice.
Cheers, Rob

rnr said:

Hi @Fiona96,
Given the interpretation that you have arrived at above, one could / would assume that you could ask your prospective accountant a question along the lines that:- If I wanted to invest & also trade in ASX securities would that be possible if I were to have two brokerage accounts (e.g. Fiona96 Investment a/c and Fiona96 Trading a/c)?
It would be interesting to find out the answer and please do not construe this suggestion as advice.
Cheers, Rob

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Thank you Rob. That's interesting. I'll ask my accountant this question.

Hi @Fiona96,

I came across this thread because over the past few days I had been researching whether you can get GST back. For background I'm a short term trader of over 10 years and not a tax professional.

There is an interesting post on the ATO community which answers your Q1. As a trader I have never had to register an ABN or register for GST. I think it's because the turnover is of shares which is something called 'financial supplies' in ATO speak, their value does not include GST. eg. you bought $20,000 worth of BHP shares but you didn't have to pay GST on the full value of those shares.

The post mentions that you can choose to register for ABN and GST, and then get 75% of GST on brokerage as GST credits because brokerage comes under a 'reduced credit acqusition'. One thing is to calculate whether it is worth it because you need to complete a BAS (possibly quarterly) to claim the GST credits. I calculated my brokerage GST and it only came up to about $100 per year so not going to bother with the whole process (ABN->GST->BAS) just yet.



The post:



Also if you trade shares as part of a larger business where you claim GST on other expenses, then you can check if you fit the criteria and can get 100% of brokerage GST back.

Definitely check with your tax accountant about all of this though.

Q2. I can't think of anything essential that a new trader has to undertake related to tax, except for tax returns. Since your turnover is over $75 K then it's easier to treat trading as a business and fill in the business section of tax return.
The four most important totals required:
- Total Sells in FY
- Total Buys in FY
- Cost of Shares held at start of FY
- Cost of Shares held at end of FY

Then there are also expenses and deductions you can claim. I just lodged my tax return and some of mine were a MS Office subscription, computer repair etc... Need to keep receipts.


Q3. I occasionally keep a record of my trades in an excel spreadsheet but I'm not very diligent with it. For that reason I don't use this spreadsheet for tax time. I download a CSV of all the trades in the financial year from my broker platform (Nabtrade), copy it into excel and use excel formulas to calculate and cross check. This also avoids any human error of typing the details into a spreadsheet.

Q4. Being an investor and trader at the same time is something to enquire about. In my mind I think it would be possible to be both, because you treat the trading as a business but your investments can be treated as personal in your return. As the others mentioned it would be prudent to have seperate accounts to avoid confusion.

@Ibiza.. by any chance do you know Kaz?

Rabbithop said:

@Ibiza.. by any chance do you know Kaz?

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No sorry I don't know Kaz. I just came across that ATO Community post when I was investigating GST tax credits. Hadn't ever heard of this GST tax credits until I saw a post on here.

One thing I forgot to mention in my answer to Q2 is dividends. Need to keep dividend statements and enter them in your tax return. Although you seem quite familiar with shares so it might be something you're already doing.
I also run a check for the Financial Year to see if any of the stocks I held paid dividends. Then check if I held that stock during that time. These days I only trade small caps which usually don't have dividends so it's a pretty quick check.

Also if you start making a lot of money there might be a chance that the ATO will ask you to do the BAS quarterly. I was asked to do this for a period of time but then was told I didn't have to anymore. After doing all this research about GST I realised I was probably filling in the BAS incorrectly.

The following website will help you if you ever need to fill in BAS:

...for a period following Covid, the ATO was relatively more lenient on taxpayers who were falling behind on their taxes. But all that has changed and is now firmly in collections mode ; if you have a tax debt, expect a phone call from the ATO or one of their contracted debt collection agencies in the near future if they have not already been in touch.

Some 22,000 taxpayers are responsible for $11bn of tax debt. That’s an average tax debt of $500,000 for each person or entity on the ATO’s most wanted list.

“Taxpayers shouldn’t be held to account for those 1 per cent of bad apples that have no intention of meeting their obligation yet represent 20 per cent of all outstanding tax liabilities.”

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