Hi
@herbalist &
@issy79
My understanding of how the ATO defines a 'professional trader' is that they don't so much have a defined line that makes you a 'professional trader' for tax purposes, it's more a matters of opinion and a case by case assessment.
The link that Aljini provided, explains it quite well in my opinion. Particularly these points or 'tests'
- the nature of the activities, particularly whether they have the purpose of profit making
- the repetition, volume and regularity of the activities, and the similarity to other businesses in your industry
- the keeping of books mce-anchorof accounts and records of trading stock, business premises, licences or qualifications, a registered business name and an Australian business number
- the volume of the operations
- the amount of capital employed.
In the 2016 financial year, I did around 110 trades (220 buy & sell combined) which effectively means I did 2 trades a week. Although in my opinion, I actually only did around 30-40 trades, as I broke down my orders into small parcels to allow me to accumulate and sell easier.
This was a huge flag to my accountant and she discussed with me, how she thought the ATO would interpret my trading history.
I would fail the first test, as I obviously had a strong intention of producing a profit.
I would badly fail the second test, as 110 trades or 2 per week on average, is considered regular
I only would just pass the third test, as I was pretty poor with record keeping and didn't do it under a business
I would easily pass the fourth test, as I didn't really have a 'volume of operations' I was trading on a casual basis
The last test, we weren't too sure how it would be interpretted. I had around a 100k portfolio..
The advice my accountant provided me was to just set up a trust and trade under that, then distribute profits accordingly. If I'm wanting to trade under my own name, she wants me to reduce my number of trades to less than 40.
I hope that helps
Obviously I'm not an accountant and this isn't advice. You should get some professional tax advice from a licenced tax agent.
