Capital Gains - Tax, 31763242, page-15 - HotCopper | ASX Share Prices, Stock Market & Share Trading Forum

Originally posted by zebster ↑

Generally accurate, but some points of clarification required:
- The top marginal personal tax rate is currently 47%, not 49% (i.e. 45% + 2% medicare levy).
- Most ASX stock punters, regardless of what they say or think they are doing (eg: "I am investing", or "I am trading"), are actually classified by the ATO as "investors", as opposed to "traders". There are specific rules associated with whether the ATO will accept and treat someone being classified as a "trader". Making a whole bunch of trades during any given financial year is only part of the required criteria. Having a "trader" status means that your profits/losses are treated as operating income/loss and are not treated as capital gains/losses (as per CGT provisions). This might seem like semantics, but there are circumstances in which how someone is classified by the ATO can have a material impact on the tax payer. For most people in most situations, being an "investor" is fine. Some people are just very, very active investors.

The original poster seemed to be getting confused between how the tax payable is calculated and what the applicable rate of tax is. It sounds like his accountant was referring to the 50% capital gains discount for an asset held for 12 months or longer (i.e. 50% of the gain is tax free), rather than anything else, which you have amply explained.

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- Most ASX stock punters, regardless of what they say or think they are doing (eg: "I am investing", or "I am trading"), are actually classified by the ATO as "investors", as opposed to "traders". There are specific rules associated with whether the ATO will accept and treat someone being classified as a "trader". Making a whole bunch of trades during any given financial year is only part of the required criteria. Having a "trader" status means that your profits/losses are treated as operating income/loss and are not treated as capital gains/losses (as per CGT provisions).

I agree with what you said here, but I may be a bit pedantic saying that the ATO doesn't classify you as "Investor" or "Trader" until they actually assess your share buying/selling history. I have a company that purely buys and sells shares and options and I "think" that the company is a trader, but until the ATO queries the company's share trading history I won't know whether they would see the company as an investor or trader. I "think" the company qualifies as a trader and prepare the company tax return on that basis, but it could turn out the the ATO has a different opinion.

I would assume that one can only get the "trader" status, apart from being audited by the ATO, by asking for a ruling from the ATO.

Since a company cannot claim the 50% discount for shares held more than 1 year, I do not think there would be a huge difference in tax payable whether the company is treated as "investor" or "trader". What would be interesting and I don't know what the practice is, is if an individual genuinely thinks he is a "trader" and is assessed as an "investor" or vice-versa, whether the ATO would apply penalties if the ATO decides otherwise and there is a deficit in the tax owing as a result of the ATO decision. I am thinking here on those individuals that are borderline, rather than those who blatantly in the wrong camp.