The Tax In Trading

[Banenarr]

Just would like to know
What are the taxes issued on people that trade normally and also trade in options , im just trying to incorporate all the expenditures when trading eg

brokerage fees , assigning fee ( or something like that when you trade options)

Is there a capital gains tax?
How much do you get taxed for dividends?
do premiums get taxed?
so if its not too much trouble direct me or tell me ALL the taxes that i need to be aware of.

Thanks

 

[JohnGalt]

Banenarr

I'm relatively new to share investing but I've read a few boomks on tax and investment. I'd like to recommend "Income Tax and Investment" by Nick Renton - an easy to understand book (I'm not an accountant) that explains the tax implications of investing.

As for your specific tax questions, they depend on whether you are a professional trader (it is your job/you are director of a company you set up to trade shares) or you're an average Joe Punchclock trading shares on the side with money he earned from his/her normal 9 to 5 job. Assuming you belong to the latter, the tax implications should be as follows:

Tax on dividends:
Any dividends you receive are treated by the ATO as standard income, which at tax time is added to your total income. So, if you earn 50k as a plumber and receive 10k from you shares, you will be taxed that year for 60k income.

Keep in mind that if you dividends were franked, then you get imputation credits which reduce your tax bill. This is too complicated to expalin in this post and I recommend you research it further or look up Rentons book.

Capital Gains:
Capital gains tax only applies at the time you sell an asset (be it a share, property etc) and if that asset has increased in value. If you buy a share for $1 and sell it for $5 then you've made a capital gain of $4 - irrespective of what dividends that share gives you (they are treated as described above). This $4 is then added to your income for that year (as with dividends) and you pay tax on your standard income plus your capital gains income.

Now, if this share was bought and sold within 1 year than capital gains applies on 100% of your gain (ie $4), but if you held the share for more than 1 year (ie 366 days or more) and then sold it the tax only applies to 50% of the gain (ie $2) and only this amount would be added to your assessable income for that year. Once again, this rule is explained in Rentons book.

I do not understand what you mean by premiums, but if it is a form of income than it will be treated in a similar fashion to that described above.

Thats a very quick run down of the income tax issues associated with dividens and capital gains. If you are seriosuly about to get into investing, I reommend thoroughly researching the tax implications of your expected future income. There are ways to legally minimise your tax bill if you know the basic ins and outs of Australia byzantine tax system.

Personally, I set up a family trust to handle my investments because it allows me to distribute income to the trust beneficiaries in a tax-effective manner, instead of having all dividens come to me and being taxed highly (as I am in one of the upper tax brackets).

Because there really are two tax systems in this country - one for the informed and one for the un-informed.

I hope this rant has helped and doesn't contain too many flaws.

 

[CedricTheDragon]

My recommendation would be get yourself the best tax accountant you can find. It will be worth the money in the long run. They will save you twice the money they cost you. A 50% return on investment as well as keeping you out of trouble

 

[Banenarr]

I dont have any contacts in that area , would you be able to point me in the right direction to what qualities or services a good tax accountant supplies over a not so good 1.

Is it a good idea just to run off price ?
i want to be able to leave the stuff with someone and know that its in the best hands but i know like every industry , there is the bad and good.

I tend to be too trusting of professionals and take what they say at face value becuase of my lack of knowledge in that area.

Thanks

 

[TraderPro]

I dont have any contacts in that area , would you be able to point me in the right direction to what qualities or services a good tax accountant supplies over a not so good 1.

Is it a good idea just to run off price ?
i want to be able to leave the stuff with someone and know that its in the best hands but i know like every industry , there is the bad and good.

I tend to be too trusting of professionals and take what they say at face value becuase of my lack of knowledge in that area.

Thanks

With finding one - its best to ask your friends or family for referrals... then when you find a few numbers - call them and ask if they have any experience with what your doing (especially if you are trading some derivative instrument) - ask them if they have other clients doing the same thing your doing...

Even cheap accountants can do a good job. I guess if you're earning $1million (which I'm not) from trading - then its probably a good idea to hire the best of them... but if you're only earning peanuts, it probably isn't worth the hassle.

 

[Dennis]

I've only traded shares to date. Can anyone confirm if CFD trading profits/losses are regarded as capital gain/loss or income?

In essence I'm asking are CFD's treated the same as shares?

cheers

Dennis