Based on the following definitions from the ATO website, it would appear that the majority of active Hotcopperites are Share Traders. Being a Share Trader rather than a Share Holder means that the normal Trading Stock rules, also defined further below, apply. That is, as a Share Trader you need to calculate the value of your shares after the close on 30-Jun-2006, then the years profit or loss is simply based on the end of year's Trading Stock value compared with the value at the end of the previous year. Hence, as a Share Trader you are not eligible for the 50% capital gains tax allowance after holding a stock for more than 12 months.
Are all the frequent traders out there classifying themselves as Share Traders? If not the ATO may do it for you?
Share Trader or Share Holder http://www.ato.gov.au/corporate/content.asp?doc=/content/76071.htm
Taxpayers who have bought or sold shares as part of their investment strategy will need to determine their tax liability. An important part of that process involves deciding whether they 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 someone who carries out business activities for the purpose of earning income from buying and selling shares. A share holder, on the other hand, is someone who holds shares for the purpose of earning income from dividends and similar receipts.
Relevant matters include the nature, regularity, volume and repetition of the share activity; the amount of capital employed; and the extent to which there is organisation in a business-like manner, through the keeping of books or records and the use of a system.
For a share trader: receipts from the sale of shares are income purchased shares would be regarded as trading stock 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.
In the case of a share holder: the cost of purchase of shares is not an allowable deduction – it 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 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 incurred in earning dividend income – such as interest on borrowed money – are an allowable deduction at the time they are incurred. (Examples are provided on the ATO website).
The ordinary trading stock rules are found in division 70 of the Income Tax Assessment Act 1997 (ITAA 1997). The key features are as follows:
the trading stock rules only apply where you are carrying on a business you compare the value of all your trading stock on hand at the start of an income year (opening stock) with the value of all your trading stock on hand at the end of that year (closing stock) any excess of the value of closing stock over the value of opening stock is included in your assessable income any excess of the value of opening stock over the value of closing stock is an allowable deduction to you usually, you must elect to value each item of closing stock using one of three methods: cost market selling value, or replacement value, and the value of closing stock becomes the value of opening stock for the next income year.
