Capital gains tax

[nick2fish]

but the tax office has rules concerning this sort of practice as wel

Yep, of course they do
Great to be able to hover over ones already taxed savings and swoop and pick up the juicy bits without ever putting anything on the line.

 

[bellenuit]

Even if you are a trader you can still nominate individual trades as capital purchases rather than trading stock.

Where did you hear this?

I was advised on several occassions by the tax office (back around 2000 to 2003) that you will be deemed a trader or an investor but cannot be both. At the time, I wanted to actively trade, but had a substantial portfolio that was sitting on large capital gains that would be entitled to the 50% discount. I was told that even though I bought those shares for investment purposes, if my future pattern of share trading constituted that of a trader rather than investor, my existing portfolio would be treated as trading stock and would lose the CGT discount benefits when sold.

Because of that, I set up a separate company purely for trading. I buy investments in my name and I buy shares to trade in the company name, so one is quaranteened from the other.

If the ATO had told me that I could simply nominate part of my portfolio as investments, I would not have gone through the hassle and expense of setting up a company.

 

[MS+Tradesim]

Where did you hear this?

My accountant. I leave them to sort out stuff with the ATO.

 

[jono1887]

can we make deductions on our profits from expenses like laptop, internet connection and subscriptions to newspapers, finance magazines ect from capital gains??

 

[cutz]

G'Day,

Yes, trading expenses are deducted from your taxable income.

 

[jono1887]

G'Day,

Yes, trading expenses are deducted from your taxable income.

but arent the profits made from buying/selling shares considered to be
capital gains and not income... so are you still able to deduct from it??

i heard somewhere that you need to setup a business name for it to be
classified as income...

 

[bellenuit]

but arent the profits made from buying/selling shares considered to be
capital gains and not income... so are you still able to deduct from it??

i heard somewhere that you need to setup a business name for it to be
classified as income...

If you are in the business of share trading, then your profits (and losses) from trading are classified as Income and do not come under the CGT system. In fact you do not even have to trade a particular stock to make income (or a loss) as at year end you must value your stock (this is a bit complex as there are a few valuation options that you can choose) and if there is an increase in valuation then that gets added to income, a reduction gets added to your losses.

Like any business, you can claim expenses for things related to carrying on that business.

You don't have to set up a company or have a business name to carry on the business of share trading. Whether you are deemed to be a share trader or not is dependent on the nature of your trading. This ATO document should help, but it is not clearcut.

http://www.ato.gov.au/businesses/content.asp?doc=/content/21749.htm

One area that I have got conflicting information on, is whether one can be a share trader and share investor at the same time. I had been informed by the ATO several years ago that you could be only one or the other. This can have significant implications if you already hold a large stock portfolio that has increased significantly in value (particularly if already held for more than a year, as the CGT discount would apply on any sale). If you then were to commence share trading according to the guidelines at the link above, then your existing portfolio would become part of your trading stock and any sales would NOT fall under the CGT system. You would lose the 50% CGT discount.

Several years ago when I wanted to start trading I asked the ATO about this issue and was advised that it was "safer" to set up a company to do the share trading. As a company is a separate legal entity to an individual, the company would become the share trader, but any purchases that I had or would continue to make personally as an investor would remain as investments and subject to CGT.

That being said, someone posted earlier that you are allowed to quarantine your investments from your trading. I am not sure they are right and can see potential tax avoidance possibilities if that were to be true.

 

[MS+Tradesim]

That being said, someone posted earlier that you are allowed to quarantine your investments from your trading. I am not sure they are right and can see potential tax avoidance possibilities if that were to be true.

If you ring the ATO 3 times with the same question you'll get 5 different answers.

My suggestion would be find, and be prepared to pay, a competent accountant specialising in the area. Not the corner store variety. A good accountant doesn't just prepare your tax. They are a valuable business advisor.

 

[jono1887]

If you ring the ATO 3 times with the same question you'll get 5 different answers.

My suggestion would be find, and be prepared to pay, a competent accountant specialising in the area. Not the corner store variety. A good accountant doesn't just prepare your tax. They are a valuable business advisor.

I cant afford one!! :

 

[beamstas]

I cant afford one!! :

There is a difference between "investing" and "trading"

Trading is carrying on business with the intention of making profit
Investing is...?

The ATO have a HUGE gray area on this subject

It's pathetic really

 

[jono1887]

whilst we're on the topic of taxes... i was wondering, if you open a trading account in another country, do you pay the taxes on the capital gains you make in the country you're in, or the country the account is held?

ie if i open a trading account i the US, do i pay my taxes from that account to the US govt or aust govt?? or could i avoid paying taxes altogether? :

 

[bellenuit]

whilst we're on the topic of taxes... i was wondering, if you open a trading account in another country, do you pay the taxes on the capital gains you make in the country you're in, or the country the account is held?

ie if i open a trading account i the US, do i pay my taxes from that account to the US govt or aust govt?? or could i avoid paying taxes altogether? :

You pay the CGT to the Australian government. Note that the gain is calculated using the exchange rate at the date of purchase and the exchange rate at the date of sale. So you DON'T first work out the gain in US dollars and then convert to Aussies. Because of the way it is calculated, you may have a gain according to the ATO, but a loss in US dollars (if the Aussie fell in value between when you bought and when you sold). The reverse also applies.

Your US broker will deduct 15% withholding tax on any dividends you receive, but you can claim that back when you declare the divies in your Australian tax.

The tax treatment may be different for other foreign countries.