What is a share 'trader'?

[GreatPig]

From my understanding, the main criteria is intention, but you need some sort of supporting evidence for your intention to be accepted. I don't believe any of the conditions mentioned here are absolutely necessary, so long as overall it's clear that you're operating a trading business and not just trying to get a deduction for investment capital losses. All those things like business plans, sophisticated systems, trading volume, sufficient capital, etc. all help but I don't believe any are mandatory in themselves.

The advantages of being a business trader are the ability to deduct transaction costs in the year they are incurred, offset losses on sales against other forms of income (eg. dividends), and claim back GST (if registered). The loss of the 50% CGT discount would rarely be an issue as most positions would not be held for 12 months.

The disadvantages are the loss of the 50% discount if held for more than 12 months, the treating of the portfolio as trading stock (meaning you may pay tax on unrealised gains), and probably the higher management overhead (it takes time to work on all those business plans, records, and sophisticated trading systems!).

This is all just my personal opinion though. See your own tax specialist.

Cheers,
GP

 

[Prospector]

The CG is only 30% (ie company tax rate) too regardless of how long the shares are held!

 

[rozella]

A good explanation GreatPig.

It suits me to be a trader, my average holdings are 17.74 days to date this FY, so 50% cgt does not enter the equation.

I trade cum-dividend stocks & if I go the full cycle & collect the dividend, I may sell in tougher times before the stock rises back to my original buy price. This means that I can offset the trading loss against the dividend. If I was a shareholder, I would be paying more tax on the full dividend, yet the capital loss could not be offset & can be only offset against capital gains.

Also a trader can value their stock at cost or current value whichever suits, providing the same procedure is used for opening/closing stock.

As GP says check with your tax accountant.

 

[GreatPig]

The CG is only 30% (ie company tax rate) too regardless of how long the shares are held!

Only if trading in a company, or distributing from a trust to a company (of course a personal rate may also be 30%, but that's not always the case).

As always with companies though, you have to consider who the shareholders are and when the company will pay dividends to get the funds out for personal use. Ultimately profits could still be taxed at the top rate if the shareholders are all on the top rate. It does allow the deferring of that extra tax though by retaining the profits in the company.

But one thing to consider with retained company profits is the risk of the company tax rate being lowered in the future. Normally dividends can only be franked at the prevailing company rate, which means you may end up with excess franking credits locked in the company. And the top personal rate may not be lowered at the same time.

GP

 

[Prospector]

Yep GP, I agree with all that! Actually, now you mention about the excess credits, I must check that I haven't got exactly that position now (locked in and not usable to us personally) , or in say five years time when we start to heavily salary sacrifice in preparation for retirement. Except that will also be the time when we can release some of the previous years company profits as dividens as we start to wind up and wont need the cash for cash flow!

I havent heard of the current Govt lowering the Company rate, and I am betting that Rudd wouldnt either. But you never know.

Also a trader can value their stock at cost or current value whichever suits, providing the same procedure is used for opening/closing stock.

Rozella this is a really valid point - I wonder which my accountant used, given that there was some very nice growth last year that was never realised!

 

[yonnie]

Also a trader can value their stock at cost or current value whichever suits, providing the same procedure is used for opening/closing stock.

each trading stock can be valued at the trader`s choice
1. at cost
2. at market selling value
3. at the price at which it can be replaced

to minimise tax the trader can opt to value his trading stock at the end of the year differently:
all shares that have gone down at market
all shares that have gone up at cost

GST:
the share trader is into financial supplies.

he/she can claim the full input tax credit if under the financial acquisitions threshold

if above then 75% of the input tax credit

so if my sales are $ 6,000,000 per year I suppose I can claim only 75% of GST?

 

[yonnie]

apart from the threshold another condition applies:

the claimed input tax concerning financial supplies should not exceed 10% of the total input tax credit.

so I you`re a share trader only, you can claim 75% of your input tax credit.

 

[reece55]

apart from the threshold another condition applies:

the claimed input tax concerning financial supplies should not exceed 10% of the total input tax credit.

so I you`re a share trader only, you can claim 75% of your input tax credit.

Yep.........

The GST regs allow you to claim 75% of your ITC on brokerage costs. This is because the transaction cost constitutes a financial supply, for which we have a Reduced Input Tax Credit Regime. So, assuming you fail either the:

1. 50K per annum financial supply credits; or
2. They exceed 10% of you GST credits 12 months forward and back

Then you can claim only 75% of the GST. I don't think you have to be a trader to take advantage of this - the key criteria is that you are carrying on an enterprise, and I am not going to get into to that kettle of fish because it would require far far too much room here.....

As usual, this is not financial advice, visit a licenced professional.....

Cheers