What is a share 'trader'?

[Mika]

G'day

I was just browsing the ATO website looking at what criteria they use in determing if someone is a share 'trader'. Below is from the website:

Nature of activity and purpose of profit making
Repetition
Organisation in a business-like manner and the keeping of records
Volume of trading
Amount of capital injected

What 'volume of trading' and 'repetition' do you think would meet this criteria? The website does not specify.

Thanks!

 

[barney]

G'day

I was just browsing the ATO website looking at what criteria they use in determing if someone is a share 'trader'. Below is from the website:

Nature of activity and purpose of profit making
Repetition
Organisation in a business-like manner and the keeping of records
Volume of trading
Amount of capital injected

What 'volume of trading' and 'repetition' do you think would meet this criteria? The website does not specify.

Thanks!

Howdy Mika, I'll have stab at that.

Volume of trading would be irrelevent Imo ........... I reckon the "volume"/amount of money invested relative to how much they own is what determines whether someone is a "real" trader or not, because then money management becomes part of the equation. If you are a billionaire, then "punting" a few thou. makes very little difference to your bottom line, but if you have limited funds, then investing a few hundred might give you the same "stress" , which has to be managed.

Re repetition:- I would guess the best traders might "trade less" than the average punter ........so repetition might be a sign of "immaturity" as a trader

PS At this point in time by my own definition I am no trader!!

Cheers, Barney.

 

[Sir Burr]

Yes, I've wondered if there are any tax advantages of being a "trader".

I believe you don't get the 50% 12 month tax concession but being a trader I guess a 12 month trade wouldn't happen anyway!

SB

 

[pacer]

I saw something a while ago that was in the .gov sites somewhere that was a court judgement on what constitutes a 'trader' trading as a job (it was from this forum too I think....do a search and you may find it, both here and .gov sites).

It stated, from my hazy new years 'bourbon memory', that you must have done trading courses and run it like a business with good account keeping, and not have worked in another job for a priod of time, a year I think, among other things.

Suits me fine.....as I haven't worked in over 3 years thanks to trading the markets and other dodgy black money deals.....and I never intend to have a real job ever again......I'm seriously having too much fun, and I like sleeping in, and going fishing, whenever I damn well please......I don't own gold worry-beads yet, but I'm getting there.

Enjoy the game and have a prosperous new year.

 

[theasxgorilla]

I think that many of us on this board (under the ATO's defination) could be traders. The reason they differentiate is actually to our benefit. As a trader your profits are an income source, and can therefore be offset against expenses and other sources of income.

The reason the two definitions exist (I believe) is to prevent punters or mums and dads having a dabble, losing money on say T2 or AMP demute, and then trying to offset the loss and lower their income tax liability.

 

[Sir Burr]

trying to offset the loss and lower their income tax liability.

So is there any tax benefit if you make make money as a trader?

SB

 

[barney]

I saw something a while ago that was in the .gov sites somewhere that was a court judgement on what constitutes a 'trader' trading as a job (it was from this forum too I think....do a search and you may find it, both here and .gov sites).

It stated, from my hazy new years 'bourbon memory', that you must have done trading courses and run it like a business with good account keeping, and not have worked in another job for a priod of time , a year I think, among other things.

Suits me fine.....as I havn't worked in over 3 years thanks to trading the markets and other dodgy black money deals.....and I never intend to have a real job ever again......I'm seriously having to much fun, and I like sleeping in, and going fishing, whenever I damn well please......I don't own gold worry-beads yet, but I'm getting there.

Enjoy the game and have a prosperous new year.

Good onya Pace I am jealous, envious, and bow down in humility b4 you .......... You are indeed a trader Cheers, Barney.

 

[theasxgorilla]

So is there any tax benefit if you make make money as a trader?

SB

There could be. As the disclaimer always goes, it depends on your circumstances. I'm an expat and would rather capital gains as they're CGT free for non-residents, so I don't operate as a "share trader".

They key difference as I see it is that as a trader you can have a net losing year and offset that loss against other income earned in the same year.

If you're a shareholder and one year you get a bite taken out of your account, all you can do is offset your capital loss against future capital gains.

Would be good if someone who operates as a "share trader" and understands tax could confirm or elaborate on this.

 

[Sir Burr]

They key difference as I see it is that as a trader you can have a net losing year and offset that loss against other income earned in the same year.

If your a trader (as Pacer mentioned) and have to:

"run it like a business with good account keeping, and not have worked in another job for a period of time , a year I think, among other things"

Then, you wouldn't have "other" income to offset it against?

SB

 

[moses]

So is there any tax benefit if you make make money as a trader?

SB

your computer would be tax deductable, and your trading expenses, and if you're doing it from home then there will be some fraction of your domestic expenses that could be claimed, like, say, 5% of your electricity bill.

As usual, see your accountant for professional advice, don't quote me as I'm just giving you an idea of what to expect.

 

[theasxgorilla]

If your a trader (as Pacer mentioned) and have to:

"run it like a business with good account keeping, and not have worked in another job for a period of time , a year I think, among other things"

Then, you wouldn't have "other" income to offset it against?

SB

To be honest, I've never seen this. In an example on the ATO's website it describes Molly the Electrical Engineer who gives share trading a go. It describes the things Pacer refers to but it makes no mention about quiting her job.

http://www.ato.gov.au/corporate/content.asp?doc=/content/76071.htm

 

[theasxgorilla]

your computer would be tax deductable, and your trading expenses, and if you're doing it from home then there will be some fraction of your domestic expenses that could be claimed, like, say, 5% of your electricity bill.

As usual, see your accountant for professional advice, don't quote me as I'm just giving you an idea of what to expect.

I believe there could be a caveat on this. If you use your primary place of residence to produce income and then want to claim a deduction for related expenses you may fore go a proportion of your primary residence capital gains tax exemption.

Once again, I don't operate this way, so you need to consult with a knowledgeable accountant.

 

[jasoni]

Also if the room you work in is being used as a study, ie the sole purpose of trading stocks for example, you can also get deductions for electricity to power the lights, heating etc as well as cleaning costs.

Tax accountants can work wonders

 

[Dr Doom]

Mika,
I have 3 trading hats -

Personal share investor - portfolio with share transactions over the long term eg the 25% (is that the current rate??) capital gains tax applies if held for over 12 months etc & gains/losses can offset & be carried forward against other capital gains/losses.

Personal investor trader - for frequent trading of shares, derivatives etc - run like a business eg cost of sales less buys less expenses, opening stock etc at the end of the year any losses can be offset against other income at personal tax rate, gains at the higher rate also.

Company investor trader - mainly for company tax at 30% & frequent trading eg CFD's but is becoming less usefull with personal tax rates falling.

Basically, if you can show the tax office that you have routine transactions involving more than what could be considered a casual investing amount and the systems to support those transactions eg computer, subscriptions, etc then they would most likely to class you as a trader as opposed to passive investor. It would help if you had a tax agent doing your tax also. As far as I'm aware, theres no requirement to give up your day job. The examples on the ATO site are pretty vague so it's a case by case basis I guess, or you could get a ruling???? or proffessional advise if you are serious.

 

[coyotte]

Was under the impression that expenses incurred for declared income was basically deductible for that income .
EG: Brokerage , Mag subscription , Service subscription, Internet etc etc

Be interesting to see what a Tax accountant had to say about -- If you became a " Sole Trader " --- Because you are doing exactly the same thing -- " Buying an Item with the intention of obtaining a Profit " --- a lot of small retailers and market stall holders are "Sole Traders" and most of these people have more than one source of income .



Cheers

 

[theasxgorilla]

Be interesting to see what a Tax accountant had to say about -- If you became a " Sole Trader " --- Because you are doing exactly the same thing -- " Buying an Item with the intention of obtaining a Profit " --- a lot of small retailers and market stall holders are "Sole Traders" and most of these people have more than one source of income .

Thats what the ATO website seems to indicate. If you are a "share trader" then your shares are "trading stock". Buying and selling for profit is income, not a capital gain.

 

[Prospector]

Mika,
I have 3 trading hats -

Personal share investor - portfolio with share transactions over the long term eg the 25% (is that the current rate??) capital gains tax applies if held for over 12 months etc & gains/losses can offset & be carried forward against other capital gains/losses.

Personal investor trader - for frequent trading of shares, derivatives etc - run like a business eg cost of sales less buys less expenses, opening stock etc at the end of the year any losses can be offset against other income at personal tax rate, gains at the higher rate also.

Company investor trader - mainly for company tax at 30% & frequent trading eg CFD's but is becoming less usefull with personal tax rates falling.

Basically, if you can show the tax office that you have routine transactions involving more than what could be considered a casual investing amount and the systems to support those transactions eg computer, subscriptions, etc then they would most likely to class you as a trader as opposed to passive investor. It would help if you had a tax agent doing your tax also. As far as I'm aware, theres no requirement to give up your day job. The examples on the ATO site are pretty vague so it's a case by case basis I guess, or you could get a ruling???? or proffessional advise if you are serious.

Hey, another tri-hatted person! I am deemed a trader in our company account according to our accountant but certainly do other work too. The shares are regarded as 'stock'

Because I also trade through a SMSF the records I keep are totally spotless and through a professional softwarepackage that uses access (portfolio planner)

 

[Ted]

Hi guys,

Another newbe with with no experience in shares (or forums) and wondering why I did not start years ago.

I also had a look at the ATO site and found it more confusing than helpful.

Your comments about long and short term trading stratagies and buying/selling for profit makes much more sense.

Thank you for all the other comments on the site which I find very helpful in understanding shares.

 

[theasxgorilla]

From December 04, a short article in the Age on this exact subject:

http://www.theage.com.au/business/money/tools/guides/investment/trader_def.html

 

[Sir Burr]

From December 04, a short article in the Age on this exact subject:

http://www.theage.com.au/business/money/tools/guides/investment/trader_def.html

Thanks asxgorilla,

In my situation I can't see any benefit of being a "TRADER". You can claim the same stuff being a "SHAREHOLDER" and at the end of the financial year the shareholder may have lower tax due to the 50% rule and the trader, if lost money for the year can claim it on other income whereas the invester claims it on later capital gains.

SB