Brokerage fees tax deductible?

[Taltan]

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

 

[jono1887]

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?

 

[Krusty the Klown]

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.

 

[wipz]

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

 

[wipz]

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

 

[wipz]

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.

 

[Krusty the Klown]

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.

 

[beerwm]

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,

 

[rock86]

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

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

Where you pay ongoing management fees or retainers to investment advisers, you will be able to claim the expenditure as an allowable deduction. Only a proportion of the fee is deductible if the advice covers non-investment matters or relates in part to investments that do not produce assessable income. You cannot claim a deduction for a fee paid for drawing up an initial investment plan.

Interest

If you borrowed money to buy shares, you will be able to claim a deduction for the interest incurred on the loan, provided it is reasonable to expect that assessable dividends will be derived from your investment in the shares. Where the loan was also used for private purposes, you will be able to claim only interest incurred on that part of the loan used to acquire the shares.

Interest on capital protected borrowings

A capital protected borrowing is an arrangement under which listed shares, units or stapled securities are acquired using a borrowing where the borrower is wholly or partly protected against a fall in the market value of the listed shares, units or stapled securities.


Travel expenses

You may be able to claim a deduction for travel expenses where you need to travel to service your investment portfolio – for example, to consult with a broker or to attend a stock exchange or company meeting. You can claim a deduction for the full amount of your expenses where the sole purpose of the travel relates to the share investment. Where the travel is predominantly of a private nature, only the expenses which relate directly to servicing your portfolio will be allowable.

Cost of journals and publications

You may be able to claim the cost of purchasing specialist investment journals and other publications, subscriptions or share market information services which you use to manage your share portfolio. For more information, see Taxation Determination TD 2004/1 - Income tax: are the costs of subscriptions to share market information services and investment journals deductible under section 8-1 of the Income Tax Assessment Act 1997?.

Internet access and computers

You may be able to claim the cost of internet access in managing your portfolio. For example, if you use an internet broker to buy and sell shares, the cost of internet access will be deductible to the extent you use the internet for this purpose. You cannot claim a deduction for the private use portion.

You can also claim a capital allowance (previously known as depreciation) for the decline in value of your computer equipment to the extent that it has been used for income producing purposes. You cannot claim a capital allowance for the private use portion.

Borrowing expenses

You may be able to claim expenses you incurred directly in taking out a loan for purchasing shares which can reasonably be expected to produce assessable dividend income. The expenses may include establishment fees, legal expenses and stamp duty on the loan. If you incurred deductible expenses of this kind totalling more than $100 or more, they are apportioned over five years or the term of the loan, whichever is less. If your expenses are less than $100 or less, they are fully deductible in the year you incur them.

Other deductions

Any other expenses that you incur which relate directly to maintaining your portfolio are also deductible. These could include bookkeeping expenses and postage.

Deductions denominated in a foreign currency

All deductions that are denominated in a foreign currency must be translated into Australian dollars before being claimed on your Australian tax return. For more information on the exchange rates that should be used in translating foreign currency deductions, see the fact sheets Foreign exchange (forex): the general translation rule (NAT 9339) and Foreign exchange (forex): general information on average rates (NAT 13434) available on our website.

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.

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

 

[wipz]

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

 

[Krusty the Klown]

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.

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.

 

[Chorlton]

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....

 

[Krusty the Klown]

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!!!!

 

[rock86]

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!!!!

Hit the nail on the head

ps. This type of thread could nearly be a sticky

 

[beerwm]

when you talk about 'ordinary deductions'

are you talking about.

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

 

[rock86]

when you talk about 'ordinary deductions'

are you talking about.

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

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

 

[johnnyg]

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.

 

[beerwm]

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.

 

[Krusty the Klown]

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.

 

[SilverRanger]

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