Tax Time - trading/investing and taxes

[cheeyeen]

Just an offshoot question, which I should have asked my accountant a while ago, with regard to the capital gains.

The capital used for investing is equally owned by two people(50/50 split)in a joint account, one has a broking account for trading. Can the capital gains be 50/50 split and recorded on the two individual tax returns? and further to CG, what about dividends and franking credits?

My assumption was yes, since the capital used to produce the capital gains is legally owned 50/50 by both people........or is that not the case and for this to occur both people would need a joint broking account?

cheers

Yes, 50/50 is fine for all those things mentioned. The shares are legally owned by one person only, the one who has the broking account and the chess sponsor if a dispute arises. But for tax purposes splitting everything is fine as long as all tax is paid.

Sometimes you might find an issue where the broker will only settle trades to an account in the same name(s) only, as the broking account, but its up to the broker.

I have different opinion and probably wouldn't split it in this case (note this is just my view and I am not a qualified tax agent or accountant). The investment is held under one person's name and that is the person who should report the capital gain/dividends etc. The source of funding doesn't determine how you split the profit/income.

You could argue that the investment is held in trust for a partnership, but you need documentation to prove that if you get audit by the tax office. Especially it doesn't look like you have that intention and the support document when you start investing (since you are asking about 30/70 etc.) so the anti avoidance rule could come in. This is especially true if you are splitting with someone with lower income tax threshold.

The ATO can do (and they do) data matching easily these days (they can even pre-filled the dividends info for you in e-tax). They know how much income/gain is registered under a tax file number (and I don't think you can provide 2 tax file number for a CHESS account under one person's name). When the system found out that the div/capital gain amount in your tax return is different from what they get from the share registry, it is almost an invitation to a tax audit if you do it this way. Probably not worth it in my opinion.

 

[Krusty the Klown]

I have different opinion and probably wouldn't split it in this case (note this is just my view and I am not a qualified tax agent or accountant). The investment is held under one person's name and that is the person who should report the capital gain/dividends etc. The source of funding doesn't determine how you split the profit/income.

You could do it that way if you wanted to.

You could argue that the investment is held in trust for a partnership, but you need documentation to prove that if you get audit by the tax office. Especially it doesn't look like you have that intention and the support document when you start investing (since you are asking about 30/70 etc.) so the anti avoidance rule could come in. This is especially true if you are splitting with someone with lower income tax threshold.

The evidence would be on the second party's tax return where the income is declared. Also from the joint bank account statements.

 

[MACCA350]

Generally spouses can do this, but no assets held by other joint parties can. If you modify ownership legally, then yes (buy buying the other party out or one party introducing more capital).

But just changing equity to minimise tax - no that would qualify as tax avoidance - if it resulted in a lower amount of tax paid than would be at 50:50. Changing equity from year to year another no-no.

I'd have thought it would be simple tax minimization, though I guess they would not see it that way

You could argue that the investment is held in trust for a partnership, but you need documentation to prove that if you get audit by the tax office. Especially it doesn't look like you have that intention and the support document when you start investing (since you are asking about 30/70 etc.) so the anti avoidance rule could come in. This is especially true if you are splitting with someone with lower income tax threshold.

We do have a trust(which was setup prior to the first stock purchase) though the intention was not for trading but another company which is for other purposes. But I guess we could use the trust for distribution of stock trading returns also........ we'll have to go through all this with our accountant in due course.

cheers