Interactive Brokers Aussie tax reconciliation query

[Cruzer]

Hi, I am a newbie to this forum and relatively new to trading.

I have recently been trialing a demo account with Interactive Brokers to enable me to become familiar with both the trading platform and their accounting processes. At first glance the account reconciliation data appears to be quite complex to decipher and I am querying the degree of difficulty that will be required when presenting this data for my Australian Tax return? Understandably, the IB platform is primarily designed for US residents and I gather they provide a very comprehensive tax wrap for the US financial year but not for foreign FY's.

I have deposited AUD in the account and for demo purposes I have been mixing my trades up by using the 'FX Order' pair AUD.USD function on some trades and not on others. To try and get a handle on the IB platform I have been trading stocks both long and short (Aust & Foreign), ETF's and Indices. I am beginning to think it may be prudent to set up separate currency accounts to trade the respective products as the account reconciliation does appear quite complex and I would welcome opinions on this thought? Dividend payment reconciliation is another factor I need to be mindful of and I would welcome feedback regarding this consideration?

I have some experience using both Bell Direct & Commsec and the tax reconciliation is obviously fairly straight forward using these platforms but I have some concerns with IB in this respect at first glance? My main motivation for venturing with IB is to reduce trading costs, utilize more flexible 'conditional order and stop loss features' and to have access to a wider suite of product range within the one platform.

I am trading as an 'individual' so there is no company structure to consider here. Any opinions or advice on the need for specific trading accounting software etc. will be gratefully appreciated as there is clearly a wealth of trading experience within this forum.

Totally open to opinions on other suitable 'credible' trading platforms as I am still in the relatively early stages of structuring myself but for the meantime my immediate concern is the tax reconciliation issues with IB?

Thanks

 

[payday]

Understandably, the IB platform is primarily designed for US residents and I gather they provide a very comprehensive tax wrap for the US financial year but not for foreign FY's.


Thanks

I have been with IB for many years - probably 7? Anyway - in my opinion the tax return reports from IB are second to none. Better than any of the major Australian brokers - makes ours looks positively archaic. Mind you - I have my accountant do my tax returns and I have asked him about the quality of the IB reports as opposed to the Comsec account that I have and he agrees that the IB reports are clear and concise, whereas the Comsec ones are a bit convoluted because of the separate accounts that Comsec demands - the CIA and the CDIA accounts although this year should be different because of the closure of those CIA accounts. At the end of the day, the accounts from any brokers accounts are easily decipherable by any half decent accountant, but I guess if you are doing it yourself and have no formal training in that area, it may be a bit more difficult.

 

[Cruzer]

I have been with IB for many years - probably 7? Anyway - in my opinion the tax return reports from IB are second to none. Better than any of the major Australian brokers - makes ours looks positively archaic. Mind you - I have my accountant do my tax returns and I have asked him about the quality of the IB reports as opposed to the Comsec account that I have and he agrees that the IB reports are clear and concise, whereas the Comsec ones are a bit convoluted because of the separate accounts that Comsec demands - the CIA and the CDIA accounts although this year should be different because of the closure of those CIA accounts. At the end of the day, the accounts from any brokers accounts are easily decipherable by any half decent accountant, but I guess if you are doing it yourself and have no formal training in that area, it may be a bit more difficult.

Thanks for your very quick reply Payday. I take it you just run an 'activity statement' for the entire Australian Fin Year period and present this to your accountant or is there another tax report available in the IB site which I may not have seen yet? I am encouraged to hear this may not be the impediment I initially thought it may prove to be. I do use an accountant but he seemed a little aghast when I showed him a printout of a mere two months of trading activity taken from the 'account management - activity -statement' site, due to all the different fees, commissions and currency permutations? Do you mind telling me if you have set yourself up using different currencies in the account or do you just 'hedge' as you trade using AUD? Thanks again, much appreciated.

 

[payday]

Thanks for your very quick reply Payday. I take it you just run an 'activity statement' for the entire Australian Fin Year period and present this to your accountant or is there another tax report available in the IB site which I may not have seen yet?

Yes - I present the fiscal year report to him which is found under the reports>activity>statements tabs. The cash report is a very succinct summary of the FY activities. That is what I look at anyway. Is your accountant looking at all your individual trades? That would be mind boggling especially if you trade a lot. I trade futures only, so I have set up the base currency as AUD which IB then converts from USD to AUD for the reports. They also present the USD cash report as well alongside the AUD cash report. All in all very succinct and easy to interpret.

 

[Cruzer]

Yes - I present the fiscal year report to him which is found under the reports>activity>statements tabs. The cash report is a very succinct summary of the FY activities. That is what I look at anyway. Is your accountant looking at all your individual trades? That would be mind boggling especially if you trade a lot. I trade futures only, so I have set up the base currency as AUD which IB then converts from USD to AUD for the reports. They also present the USD cash report as well alongside the AUD cash report. All in all very succinct and easy to interpret.

Thanks very much for this info; I did present my accountant with the entire activity report for which the 'cash report' is but a small section. He had a flick through the entire 30 odd pages but I was mainly trying to sound him out on the degree of difficulty for future tax reconciliation at the time and I think this report 'shocked him' somewhat, as it certainly did to me when I first pulled it up! I imagine the 'cash report' accompanied by a snapshot of all unrealized P/L at the close of trade 30 June our time should suffice. I still have to work out the 'dividend' breakdown as I haven't had an example of this in the cash report yet for my trades. I did have one payment 'in lieu of dividend' for a short position I traded and this was noted in the cash report.

I want to look into 'futures' as I progress but I think I have a lot of reading to do beforehand as I'm led to believe (possibly quite ignorantly) they are at the higher end of the risk curve?

Very grateful for your input.

 

[payday]

I want to look into 'futures' as I progress but I think I have a lot of reading to do beforehand as I'm led to believe (possibly quite ignorantly) they are at the higher end of the risk curve?

Very grateful for your input.

I can't ignore this statement - just because futures are leveraged instruments does not, in my opinion, make them any more risky than a non leveraged instrument - like shares without margin etc. The risk lies in the user. Always has, always shall be. You can just as easily get wiped out trading a non leveraged instrument as you would a leveraged instrument. Education is key - you must learn and understand the market you are trading in. Otherwise, getting wiped out is inevitable. An analogy would be - "is a V8 car more dangerous than a 4 cylinder?"

 

[Cruzer]

I can't ignore this statement - just because futures are leveraged instruments does not, in my opinion, make them any more risky than a non leveraged instrument - like shares without margin etc. The risk lies in the user. Always has, always shall be. You can just as easily get wiped out trading a non leveraged instrument as you would a leveraged instrument. Education is key - you must learn and understand the market you are trading in. Otherwise, getting wiped out is inevitable. An analogy would be - "is a V8 car more dangerous than a 4 cylinder?"

I appreciate the point you make Payday, and respect the experience you have to share on these forum sites. My 'futures' comment was certainly not meant to be a 'judgmental' one; merely a belief (again I reiterate quite possibly through ignorance of the product) they are at the 'specialist' end of the trading sphere. I couldn't agree more with your statement 'the risk lies in the user' and I am learning this, not only with my own trading, but also having had a couple of dreadful experiences using the services of 'professional investors' over the years. These bitter experiences were partly the catalyst for my desire to learn to manage my own funds. I think it is my perceived potential 'scale' of the damage which one can incur so quickly with 'futures' which have led me to believe to firstly learn to ride the pushbike (selected larger cap shares/ETFs without leverage), progress to the 4 cylinder (trading various cap size long and short) and hopefully, eventually to the V8/V12 (options and futures) as I learn the ropes! I will scour through these forums and numerous books to pick up as much information as possible (endeavoring to separate the wheat from the chaff), and actively trade with formulated plans and risk strategies to see if I am, ultimately, more capable at managing most of my wealth than those I entrusted and paid to do, but who ultimately failed? Naturally, I am only exposing a small portion of my funds while I have 'L' plates on. Out of interest, do you think it would be feasible to start to learn 'futures' trading early in one's trading education, without extensive exposure to the aforementioned? If you had your time again would you start with this instrument; maybe you even did?

Thank you for making the time to not only answer my initial question but to provide some further food for thought for me; much appreciated.

 

[payday]

Out of interest, do you think it would be feasible to start to learn 'futures' trading early in one's trading education, without extensive exposure to the aforementioned? If you had your time again would you start with this instrument; maybe you even did?

I think you can learn any form of trading early in your education. I use technical analysis in my trading, and as long as you can get the data for your charts, it doesn't really matter if your are trading equities or futures. I don't believe that one should have the opinion that just because you are trading a non leveraged instrument, it is any safer than a leveraged one. That will just give you a false sense of confidence.
My evolution as a trader, started with australian equities, then progressed to US equities then finally futures. I have found my niche in futures, because of my short term, momentum based type trading the bang for your buck is certainly greater. I don't think I would start with futures, if I had my time again. I just had to find my niche by experimenting with the others first. Who knows, in a few years I might be trading other things. I find that I never stand still with trading - always learning, always improving. And yes - it is far better to teach yourself to look after your money - afterall noone cares more about your money than you no matter how slick their sales gimmicks.

 

[Cruzer]

My evolution as a trader, started with australian equities, then progressed to US equities then finally futures. I have found my niche in futures, because of my short term, momentum based type trading the bang for your buck is certainly greater. I don't think I would start with futures, if I had my time again. I just had to find my niche by experimenting with the others first. Who knows, in a few years I might be trading other things. I find that I never stand still with trading - always learning, always improving. And yes - it is far better to teach yourself to look after your money - afterall noone cares more about your money than you no matter how slick their sales gimmicks.

Thank you for divulging a bit about your trading history, it is interesting to learn how people started and the paths they took. The fact you continue to trade the markets after such an interesting/challenging period of time attests to the fact you must have sound systems and methodology in place; something we all aspire to achieve, though ultimately, with mixed results! I will put my accountants mind at ease and limit the information to the cash report; many thanks for all of your feedback Payday.

 

[hawamahal]

Just a quick question on the IB reports for use in doing Tax returns :

1. The report shows Short term (S/T) profit and Long Term (L/T). What is their definition of this. Is it same as what is used by Tax office i.e. more than 1 year is concessional tax.

2. Also how are the lots used for calculating profits. FILO or FIFO

 

[Oasis88]

Hi everyone. For what it's worth I did my tax today with H&R Block in Perth. I was concerned about how it would go for reasons above but it was very straight forward. I printed off the IB statement and gave it to the accountant. 1 hour later all was sorted and I walked away happy.

He had to fish around a bit but there was no big issue.

The area to focus on is Realised P/L in base currency (AUD). This is your profit and loss over the period. From there, you can add dividends. Commissions are factored into the Realised P/L in Base section.

P.S. I'd recommended calling and booking an appointment with the manager of the office. Last year I had a new person and they really had no idea.

 

[RayJoyce]

Just a quick question on the IB reports for use in doing Tax returns :

1. The report shows Short term (S/T) profit and Long Term (L/T). What is their definition of this. Is it same as what is used by Tax office i.e. more than 1 year is concessional tax.
>> yes

2. Also how are the lots used for calculating profits. FILO or FIFO

>> As per account setting, but US reporting requires FIFO, so default is always FIFO.

 

[somebodyhere]

Hi All,

It is fairly straightforward until you start to buy overseas shares and/or buy foreign currencies.

I cannot quite work out which figures I need to take away from my "Activity Statement". Can somebody confirm or shed some light on the following please?

1. I imagine your capital gain (unadjusted for FX gain/loss) is taken from the "Realized & Unrealized Performance Summary in Base" section?

2. I can see at least 3 figures relating to FX gain/loss: (a) in the "Cash Report" section, (b) in the "Change In Position Value" section, and (c) in the "Forex Transactions" section. Note: I found that the "Forex Transactions" section does not always appear, it seems to depend on which period I choose to generate my Activity Statement for. To complicate matters, there is another FX figure obtained off a different report, the one under the menu option of Reports > Tax > Tax Forms > "FX Income Worksheet". This (d) "FX Income Worksheet" amount seems to be for US tax purposes so possibly the calculation is a little different. But I noticed that the figures in (c) and (d) are slightly different even if I choose the same reporting period. So after all this, is there a figure I can simply read off, to determine my FX gain/loss for the year? Is it one of (a), (b), (c) or (d)? And hopefully it is not (d) because (d) is only reported based on the calendar year instead of Australian financial year.

3. I imagine then, the total capital gain you need to put on your tax return is a combination of the Realized Profit from (1) and the FX gain/loss calculated from (2)? In other words it's not enough to simply look at the Realized Profit figure from (1) and ignore the FX component from (2)?

Thank you so much to anyone who is able to answer these complex questions!!

 

[TraderPete]

G'day All,

This is my first and probably only post but by way of introduction I have been trading for just shy of 30 years (futures) and have been with IB for over 11 years now. Compared with a few of the bucket shops I was acquainted with in my earlier days IB are a great company and provide a very good service and trading platform indeed.

Anyway, I saw this thread purely by accident on an unrelated Google search and decided to register just so I could throw some advice your way on the tax return side of things.

The 'Realised Net Profit' and 'Realised Net Loss' on monthly activity statements is definitely what you need to use. It is strongly recommended that you download monthly statements, and if your account is always in the default USD as the base currency, then use the official published ATO monthly exchange rates to effect the conversion so as to reconcile the USD to $A on a monthly basis. An excel spreadsheet is all you really need to use in order to derive the required information. Also, make sure that you account for the FX gain/loss on a monthly basis of your yearly opening cash balance as this can amount to quite a bit depending upon the size of your account balance.

After some lengthy discussions with the ATO myself many years ago, monthly statements are considered a minimum in order to work it all out because the ATO requires that you use a conversion rate that closely approximates the time and frequency of your actual trading. Indeed, the recent drop in the A$ in the last couple of weeks may require a mid month rate to be used when compiling next years return.

Here in lies the moral of this story, and my reason for posting because if my reading of some of the posts above is correct, then downloading a yearly activity summary only will not cut the mission if you wish to be and / or remain compliant.

I hope this helps ...

 

[bellenuit]

G

The 'Realised Net Profit' and 'Realised Net Loss' on monthly activity statements is definitely what you need to use. It is strongly recommended that you download monthly statements, and if your account is always in the default USD as the base currency, then use the official published ATO monthly exchange rates to effect the conversion so as to reconcile the USD to $A on a monthly basis.

Are you sure about using monthly rates? I thought the requirement was to use daily rates unless the complexity of doing so made it prohibitive. So purchases of US shares use the daily rate of the purchase date and sales the daily rate of the sale date (transaction not settlement dates) when calculating for CGT or P&L depending on which you do.

Although the ATO also publishes daily rates, I prefer to use the RBA daily rates, because the latter are published each day, but the former only at month end. I find it easier to keep my records up to date by updating my spreadsheet each night for any transactions while they are fresh in my mind, rather than waiting until month end.

 

[TraderPete]

Are you sure about using monthly rates? I thought the requirement was to use daily rates unless the complexity of doing so made it prohibitive. So purchases of US shares use the daily rate of the purchase date and sales the daily rate of the sale date (transaction not settlement dates) when calculating for CGT or P&L depending on which you do.

Although the ATO also publishes daily rates, I prefer to use the RBA daily rates, because the latter are published each day, but the former only at month end. I find it easier to keep my records up to date by updating my spreadsheet each night for any transactions while they are fresh in my mind, rather than waiting until month end.

I used to account for and reconcile every trade and that was a real burden. Upon speaking with the ATO they suggested / recommended that monthly reconciliation was more than adequate, although the caveat remains that if the average official published exchange rate is not a close approximation then you would need to be a little more granular. The recent drop in the $A would be a case in point for those who have actively traded over this period.

Finally, if you do have questions or doubts then it is worth speaking with the ATO directly as I have found them to be extremely helpful on the various occasions that I have interacted with them.

I hope this helps ...

 

[rx2]

I used to account for and reconcile every trade and that was a real burden. Upon speaking with the ATO they suggested / recommended that monthly reconciliation was more than adequate, although the caveat remains that if the average official published exchange rate is not a close approximation then you would need to be a little more granular. The recent drop in the $A would be a case in point for those who have actively traded over this period.

Finally, if you do have questions or doubts then it is worth speaking with the ATO directly as I have found them to be extremely helpful on the various occasions that I have interacted with them.

I hope this helps ...

TradePete is correct. When trading in foreign currencies the IB reports do adhere to the ATO requirements for calculating capital gains i.e. you need to record the purchase in AUD with the prevailing FX rate, likewise you need the sale in AUD using the FX rate for that day. For the purposes of tax time you can export all your trades as a CSV with the associated FX rate and calculate your CG with excel. This is what I do. Once you have the spreadsheet setup you can re-use it every year.

 

[ConnorP]

I used to account for and reconcile every trade and that was a real burden. Upon speaking with the ATO they suggested / recommended that monthly reconciliation was more than adequate, although the caveat remains that if the average official published exchange rate is not a close approximation then you would need to be a little more granular. The recent drop in the $A would be a case in point for those who have actively traded over this period.

Finally, if you do have questions or doubts then it is worth speaking with the ATO directly as I have found them to be extremely helpful on the various occasions that I have interacted with them.

I hope this helps ...

Thanks for your information. I have the following query:

(1) I have 99% of my cash in USD as I only trade on the US market through IB. Should I have my base currency in US$ or AUD$?

(2) Currently I have it in AUD. The activity report seems to provide realised gains/losses information. Shouldn't I just use that information directly, which is in AUD, for income tax purposes (assuming it is P&L, not CGT, for the purpose of this question)? Why is it necessary to use USD as base currency and do the monthly conversion as you suggested?

(3) Also, I understand the Realised Gains/Losses section in terms of the shares and futures/options etc. But there is a section on Forex which puzzles me. I only ever exchanged AUD into USD (when I first loaded up the account) but never the other way, so obviously there is no realised forex currency gains if you think of the initial AUD-USD exchange as trades (as I never traded it back the other way). Then this gain/loss listed must refer to the forex translation gain/loss, which I assume I need to treat just like share gains/losses??

Thanks in advance.

 

[kfbcomm]

I'd like to +1 to Connors question. If you are using IB for USD trades only, does it make sense to base the account ins USD, in which case the conversion is done at the time you transfer amounts into (and out of?) the account, or have the account based in AUD and have IB effectively exchange funds from/to AUD as you buy/sell.

Considerations I can think of for the basing the account in AUD would mean:

1) Charges ? that IB would impose for the currency exchange
2) Simplification of tax accounting (assuming the ATO would accept the spot exchange rate being used for the transactions)
3) Might make reporting messier ??

Would be grateful if anyone with experience on this could chime in.