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Share Trader or Investor, Trading Stock and Capital Asset - 11th September 2017

Investment products may be held as trading stock by a taxpayer carrying on a business of share trading or options trading. However, whether a particular parcel should be treated as trading stock must be determined on a case-by-case basis.


Generally, the tax issues facing share traders versus passive investors are summarised below.


Tax treatment of transactions, returns and related items

Event/item

Share trader

Passive investors

Gain on disposal

Sale on trading account

Capital gain

Loss on disposal

Sale on trading account

Capital loss

Dividends received

Assessable income

When received but may be accounted for when derived (ie when dividend is declared)

Assessable income

When received

Share acquisition

Purchases on trading account

Allowable deduction

Capital cost

No immediate deduction allowed

Broker fees

Purchases

Allowable deduction

Capital cost

No immediate deduction

GST on broker fees

Financial supply

Reduced input tax credits

Capital cost

No immediate deduction

No reduced input tax credits as no enterprise

Share investment course
pre-ownership

If business commenced then allowable deduction, however nexus must be established

Capital cost

No immediate deduction

Share investment course
post-ownership

Professional development

Allowable deduction

Investment expenses

Allowable deduction

Technical books

Professional development

Allowable deduction

Investment expenses

Allowable deduction

Share trading software

Business expense

Allowable deduction
(if not an establishment cost)

Investment expenses

Allowable deduction

Interest on margin loan

Interest expense

Allowable deduction incurred to obtain assessable income

Investment expenses

Allowable deduction

Prepaid interest

Deduction up to 12 months if s82KZM satisfied

Deduction up to 12 months if s82KZM satisfied

Bank charges on margin loan

Bank fees

Allowable deduction

Investment expenses

Allowable deduction

Costs to establish loan

Borrowing costs

Allowable deduction available over five years

Investment expenses

Allowable deduction available over five years


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