Can I claim brokerage fee back?

[GreatPig]

One advantage of being a pro trader that hasn't been mentioned is that losses can be offset against other revenue, like dividends and bank interest.

And if you're mainly a short-term trader who rarely holds positions for more than 12 months, then the 50% CGT discount is not a concern.

if you held it for serveral years you would have to pay tax every year as the shares rose in value

I think with trading stock valuation there's an option to value at cost rather than market value, but I'm not sure of the details.

GP

 

[Tysonboss1]

One advantage of being a pro trader that hasn't been mentioned is that losses can be offset against other revenue, like dividends and bank interest.
GP

How is this any different from trading under your own name,...

when you do you personal tax return your accountant takes into consideration all income less expences that you incurred to get that income whether that be brokage, interest,capital losses, laundry detergent work boots, fuel etc,etc.

from what I can see they is very little benefit from trading in any structure untill you are large enough that you need the asset protection or tax rate advantages, even then you have to be very carefull to pick the right structure.

 

[GreatPig]

How is this any different from trading under your own name

I didn't say it was. It was just a comment comparing trading as a business to share investing.

Structure is another thing altogether.

GP

 

[jet328]

When adding the brokerage to the cost base do you have to take out the GST component?

ie brokerage came to $1100 (you are paying $100 of GST)
Do you add $1000 or $1100 to the cost base?

 

[overule]

You are only allow to claim the brokerage fee excluding GST.

 

[GreatPig]

If you are a trading business however registered for GST then you can claim back the GST.

Another advantage of being a trading business.

GP

 

[Tysonboss1]

If you are a trading business however registered for GST then you can claim back the GST.

Another advantage of being a trading business.

GP

I am not quite sure weather you would be able to register for gst as a share trader,

generally you can only claim back gst when you are collecting gst from your customers in some way,

Gst is supposed to work out at 10% of the finished product or service,... so if you buy a large chips for $5.50 the shop has collected $0.50gst from you. but they don't have to pay they whole $0.50gst to the tax office because they have already paid gst on the products they had to buy such as the bag of frozen chips, cooking oil, rent, cleaning products etc,....... this is what businesses mean when they say they claim back gst,..... back share traders are not selling a product or service.

so I can't see how a share trader could be registered for gst,.... inform me if I am wrong though

 

[yonnie]

I reckon that you deduct $ 1100 from your profits if you are not claiming back the gst, because those are your costs.

you dont have to keep the GST separate if you dont claim the GST.
when you buy your shares say $ 10,000 + brokerage $ 25 inclusive of GST, you can book the whole amount of $ 10,025 as stock.



tyson: I am a share trader and I am registered for GST.

 

[Tysonboss1]

I reckon that you deduct $ 1100 from your profits if you are not claiming back the gst, because those are your costs.

I am afraid not,.... Gst is a tax,....

And unfortunatly "TAX" is not "Tax deductable"

 

[barnz2k]

OK I get the bit about offsetting brokerage if I sell a stock, but WHEN is that brokerage taken from?

Is it from the same Financial Year or the brokerage on the stock in question?

Ie, 1st year I buy 6 stocks=6 brokerage costs.
2nd Year i buy 3 more= 3 brok.costs
3rd year i sell 2=2 brokerage costs.

so I can only take the 2 selling costs against my 2 sold share's profit?

 

[Hyperion]

If you are in the "business" of trading shares, and are registered for GST you may claim GST on brokerage.

However, as brokerage is a financial supply, you only get a reduced input tax credit (i.e. 75% of the GST)

Superfunds may also claim GST on brokerage.

If you are on capital account, the entire amount of brokerage including the GST counts towards your cost base of your shares.

 

[overule]

Alright,

So i have decided to become a share trader, realizing that i always sell my shares/options before 12 months so i won't benefit from the 50% CGT.

What's the first step ? or is it as easy as keeping record of brokerage fees and claiming it when doing tax returns ?

Thanks!

 

[Hyperion]

I am afraid not,.... Gst is a tax,....

And unfortunatly "TAX" is not "Tax deductable"

Hmm, well you're not actually claiming a tax deduction for it specifically. You're counting it towards your cost base which will reduce the capital gain when you eventually sell it. (This is assuming you are on capital account).

GST is a separate tax to Income tax (CGT is part of income tax). It know it seems stupid that you're reducing your tax with another tax but thats how it is I guess. For example - Stamp duty counts towards the cost base of property. It is an incidental cost in acquiring the asset, the 2nd element of cost base.

 

[Tysonboss1]

If you are on capital account, the entire amount of brokerage including the GST counts towards your cost base of your shares.

If it counts towards your cost base then you are not really claiming it back,... you are just not getting taxed on it again.

 

[Hyperion]

Alright,

So i have decided to become a share trader, realizing that i always sell my shares/options before 12 months so i won't benefit from the 50% CGT.

What's the first step ? or is it as easy as keeping record of brokerage fees and claiming it when doing tax returns ?

Thanks!

Becoming a share trader is not an election. It is a question of fact. The following factors may be relevant in determining whether one is in the business of trading shares;

the nature of the activities, particularly whether they have the purpose of profit making
the repetition and regularity of the activities
organisation in a business-like manner, the keeping of books or records and the use of a system
the volume of the operations, and
the amount of capital employed.


For some reason, people seem to have this idea that if they qualify as a share trader, they will get an advantage by getting a deduction for brokerage.

If you are buying and selling your shares so often (say within the same year) then you are effectively getting a deduction for brokerage anyway because it is included in your cost base and reduces your capital gain.

Also, you dont need to be in the business of share trading to get a deduction for investment related expenses. Brokerage is different because it is an incidental cost in acquiring an asset and directly referrable to the acquisition. Other investment related expenses will still be deductible even if you are on capital account e.g. Investment newsletters.

Remember the general rule for deductions:

You can deduct from your assessable income any loss or outgoing
to the extent that:
(a) it is incurred in gaining or producing your assessable income;
or
(b) it is necessarily incurred in carrying on a *business for the
purpose of gaining or producing your assessable income.

 

[GreatPig]

Regarding being in the business of share trading, take a look at these ATO articles:

Fact Sheet
ID 2001-745
ID 2001-746

GP

 

[Hyperion]

If it counts towards your cost base then you are not really claiming it back,... you are just not getting taxed on it again.

Hmm, I hope this example helps...


Trader

Buy: $1000 shares, $10 brokerage (excl GST), $1 GST

Sell: Proceeds $1200

Profit = $1200 - $1000 = $200

Tax deduction for brokerage = $10

Taxable income = $200 - $10 = $190

GST refund = 75% x $1 = 75c


Investor (capital account)

Buy $1000 shares, $10 brokerage (excl GST), $1 GST
Cost base = $1011

Sell: Proceeds = $1200

Cap Gain = $1200 - $1011 = $189

Assessable income = $189


So when something goes into your cost base, you pretty much are getting a deduction for it. Its like a deferred deduction, it only applies when you sell the asset.

^Thats how I think it all works anyway :

Feel free to correct me anyone

Cheers

Hyperion

 

[GreatPig]

So the GST-registered trader is still a little better off, since he pays tax (say 30%) on the $1 spent on GST but gets 75 cents back, a return of 45 cents, whereas the investor gets a deduction for the $1, a saving of 30 cents.

So the investor gets a 30 cent benefit while the trader gets a 45 cent benefit.

Mind you, if both were on 40% tax, then the investor would get a 40 cent benefit while the trader would only get a 35 cent benefit.

Is that correct?

GP

 

[Hyperion]

"since he pays tax (say 30%) on the $1 spent on GST"

hmm, maybe im reading you wrong but you pay tax on income, not expenses...

He has spent $1 on GST, and he gets 75c GST refund. I think its completely separate to income tax.

Hyperion

 

[GreatPig]

Yes, I realised afterwards that I had faulty logic there

I was just looking at the investor getting a tax deduction for the GST while the trader doesn't, but the trader gets a 75% rebate.

Perhaps if we look at it this way for that $1 GST, assuming in both cases the tax rate is 40%:

Investor: earns $1 income (+$1), spends $1 GST ($1-$1=$0), no more tax to pay or refunded. Net result $0.

Trader: earns $1 income (+$1), spends $1 GST ($0), pays 40c tax on income (-$0.40), gets a 75 cent rebate (+$0.35). Net result +$0.35.

So the trader retains 35% of his $1 income while the investor retains nothing (for a 30% tax rate it would be 45% retained). Only if the tax rate were to exceed the rebate level would the trader be worse off.

Now I think I have it right...

GP