from the ato website
http://www.ato.gov.au/taxprofessionals/content.asp?doc=/content/21749.htm&page=6&H6
Carrying on a business of share trading
The difference between a share trader and a share holder
The way in which income and expenditure are dealt with in relation to shares varies depending on whether you are a share trader or a share holder.
While the Tax Office considers each case on its individual features, in summary a share trader is a person who carries out business activities for the purpose of earning income from buying and selling shares. This person's position may be briefly summarised as:
Receipts from the sale of shares constitute income.
Purchased shares would be regarded as trading stock.
The nature, regularity, volume and repetition of the share activity are consistent with those of a share trading business.
Costs incurred in buying or selling shares are an allowable deduction in the year in which they are incurred, and
dividends and other similar receipts are included in assessable income.
A share holder is a person who holds shares for the purpose of earning income from dividends and similar receipts. This person's position may be briefly summarised as:
The cost of purchase of shares is not an allowable deduction, but is a capital cost.
Receipts from the sale of shares are not assessable income –however, any net profit is subject to capital gains tax.
A net loss from the sale of shares may not be offset against income from other sources, but may be carried forward to offset against future capital gains made from the sale of shares.
Costs incurred in buying or selling shares are not an allowable deduction in the year in which they are incurred, but are taken into account in determining the amount of any capital gain.
Dividends and other similar receipts are included in assessable income, and costs (such as interest on borrowed money) incurred in earning dividend income are an allowable deduction at the time they are incurred.
Last Modified: Monday, 23 June 2008
-------------------------------------------------------
my take on whats been said above is this, if you have been buying and selling shares with the intention to make a profit from that activity you are a trader . your decision to buy/sell may come from charts/chat rooms/moon cycles/etc and you do so on a repetative action.
A share holder is someone who purchased for the dividend and if the shares happened to be higher when you sold sometime later then you could take advantage of the discount rule for capital gains.
example of a share trader
bought bnb .22 , sold .45 within days
bought bnb .33 , sold .22 within weeks
bought bnb .16 , sold .25 within days
bought bhp $30 , sold $32 within months
bought bpt .90 , sold 1.20 within weeks
bought bpt 1.00 , sold 1.60 within months
bought bhp $25, currently hold
come tax time you have to find out the value of bhp on last day of tax year 31-jun and work out if you have made a trading loss or gain even though you havent sold the stock. (called trading stock). if you continue to hold bhp past 12months you are not entitled to any capital gain discount like a share holder. once again you calculate your position on bhp next tax time on the diference between the 31-jun price of one year to the next.
Its best to open another share account to separate your trading stock from any you wish to hold for the long term as a share holder to take advantage of the capital gain discount.
As an share holder your main advantage is the capital gain discount, you will note that if you are using borrowed funds it says above you can claim costs if using that borrowed money on dividend earning income, lots of companies have stopped paying dividends so there could be some/lots of people caught out . As a share holder you cant claim a loss on a stock if you sell a loss making stock and rebuy that same stock again shortly later. called stock washing and denied by the ato.
As a share trader you include all costs, brokerage, gst, borrowing costs on any stock purchase regardless if it pays dividends.
please get professional opinion (thats if there is one)before deciding on anything read above.
BNB
babcock & brown limited
