Taxation

[Bin57again]

Apologies. Boring as hell I know.
Simple question - what is the most tax effective way for an individual to trade? I'm not talking about super. Just disposable plain vanilla income. How can I keep minimise my tax liabilities?

 

[kaveman]

Talk to a good accountant specialising in taxation

 

[RodC]

I'm not accountant, so you probably should talk to one.

But it really depends on how much trading (and the type of trading) you are doing.

If it's just yourself then there probably isn't much point in complex structures, if you have dependents then (in some circumstances) a company or trust may be more appropriate.

Find an accountant who understands what you want to do.

Rod.

 

[money tree]

1. only buy stocks paying fully franked dividends
2. end of year, take losses on losing trades (on paper) and ignore paper profits
3. try to keep stocks for 12 months (get 50% CGT discount)
4. instead of selling June 30, sell July 1. for the next few years tax brackets move outwards, deferring a sale will save hundreds of $$$ in tax
5. invest in tax effective vehicles such as instalment warrants
6. prepay interest on margin loans
7. update your computer every 3 years, sell the old one
8. claim phone, internet, electricity, books, magazines, courses, subscriptions....anything investment related
9. buy a stock that has an AGM in a location you would like to visit, then claim all related expenses
10. if you pay 48.5% tax, consider self funded instalment warrants
11. do some dividend stripping for franking credits
12. trade through a company
13. dont get paid CFD dividends
14. invest in NZ stocks, their tax rate is 33% and imputation credits are redeemable here (and 10% more potent)
15. buy high yield stocks in kids names and utilise $5000 franking credit limits and low tax rates
16. utilise cash extraction and cash injection strategies
17. hedge some holdings and if the hedge loses claim it
18. invest in good advice

 

[kaveman]

money tree, make certain your information is up to date for tax minimisation when it comes to investing/trading

As an example when investing you may not be able to claim computer or internet costs. These may not be deemed essential tools by the ATO

 

[money tree]

Bin57again asked in reference to trading, not investing

and since he is online here getting investment related info, he obviously has a computer and pays for internet access , as such these will most likely be deductable.

 

[Bin57again]

Money tree
Thanks for your time on that - excellent response. I loved your point about the AGMs! I have some stock in JBM so will get myself over to Western Perth when I can! You mentioned deductions (point 8) and trading through a company (point 11) separately. Does this mean I can make deductions against my trading, even as an individual?
Thanks.

 

[kaveman]

Bin57again asked in reference to trading, not investing

and since he is online here getting investment related info, he obviously has a computer and pays for internet access , as such these will most likely be deductable.

MT please check before posting
If you are claiming on incomme tax as a trader you cannot claim the 50% CGT event. As a trader your profit/losses in trading are classed as income not capital gains

 

[Bin57again]

Kaveman
How do you trade? As a company?

 

[kaveman]

I trade as a partnership, I have an ABN for this. Not exactly a company though. You do not really need this as you can trade as a sole trader (individual). I have partnership because there are 2 of us on the forms.

ps I happened to have spoken to my tax accountant yesterday, so am a little up to date on those areas of trading that affect me.

 

[GreatPig]

If you are claiming on incomme tax as a trader you cannot claim the 50% CGT event

And you don't get it if you invest using a company either.

GP

 

[kaveman]

thanks GP, haven't looked at company rules for trading/investing.

Just shows that you need to do your homework by searching the information from the source (ie ATO website), or from an accredited/licensed taxation specialist / accountant.

 

[markrmau]

If you are claiming on incomme tax as a trader you cannot claim the 50% CGT event. As a trader your profit/losses in trading are classed as income not capital gains

Dammit, I'm a bit confused here. I asked my accountant about 3months ago, and he said that it wouldn't really matter, I would get the 50% cgt either as trader or investor. Also said that I can claim part of my rent (based on rough floor area of room set aside for trading), and most of internet costs etc, but don't get greedy as you don't want to raise any red flags.

Admittedly I don't think trading is the accountant's area of expertise.

 

[rozella]

You may have read this before........

The difference between a "sharetrader" & a "shareholder"

also look at the examples & the other fact sheets in the right hand column.

rozella

 

[money tree]

there is nothing there that says that a 'trader' cannot also have capital gains.

what happens when a trader sells an investment property?
what happens when a trader sells a share bought years ago before he was a trader?

can a trader become a 'holder' if he stops trading?
so a trader cannot claim interest? ouch!

 

[GreatPig]

I would get the 50% cgt either as trader or investor.

As that ATO article indicates, it depends on whether you're classed as an investor or trading business. As a trading business, there is no such thing as capital gain. All profits are normal income.

I've attached a couple of useful ATO legal documents on that issue. As far as I know they're still current. While they list some guidelines for determining business or investing operation, they're only guidelines and don't cover exact requirements (basically I think if your position was challenged, you'd just have to put up a good argument to support it).

Cheers,
GP

 

[GreatPig]

there is nothing there that says that a 'trader' cannot also have capital gains

A trader cannot have capital gains on anything purchased as part of a business operation. Obviously if the business is share trading, then they could still get capital gains on an investment property, as that's not part of the business.

As for investment shares bought earlier, I'd guess that they'd still be able to get capital gain provided they kept them strictly separate from the business. If the line between business activities and investment activities became too blurred, then I think they might have difficulty separating them for tax purposes.

That's why I use separate entities for investing and trading.

As always, these are just comments based on my own understanding, not advice.

Cheers,
GP

 

[rozella]

I agree GreatPig,

You can be an investor & a trader at the same time, it is just easier to use separate entities.

A share trader is a person who carries out business activities for the purpose of earning income from buying and selling shares. This person's position may be briefly summarised as:

receipts from the sale of shares constitute income
purchased shares would be regarded as trading stock
costs incurred in buying or selling shares are an allowable deduction in the year in which they are incurred, and
dividends and other similar receipts are included in assessable income.

So selling the shares is income & buying the shares is a deduction......no capital gains/losses have been created.

This is not advice just my own interpretation. I use a company as an investor & personally I am a trader

 

[emma]

I'm unsure of changing from an investor to trader - my tax has this memo attached (by the tax agent).

"Mrs.....was an investor during the 2005 tax year. She then decided to become a share trader.

All shares held on 30 June 2005 are her investment shares to be kept separate from share trading stock. As she sells these stocks she pays capital gains.

All shares purchased after 1 July 2005 are trading stock".

Has anyone been though this process? I'd like to verify that those stocks held at 30/6/2005 won't be included in trading stock.

 

[Stinger]

Emma,

It is possible to hold shares on both your capital account and a trading account. It has to do with your intention when ourchaseing the shares/ Therefore all shares held at 30 June 05 will be on capital account as you have made this declaration. It is not possible to however transfer shares between these accounts without attracting CGT under the trading stock rules in the legislation.

You, or your accountant, should have two separate share schedules showing your buy/sells in your trading account and your buy/sell on your investment account.

I hope this helps.