GOOD RECORD KEEPING IS VITAL
Treat your paperwork like gold.
You’ll receive periodic transaction statements showing the value of your investments and the fees and taxes paid.
Store these records in a safe place, so that you can easily lay your hands on them for accounting and tax purposes.
Some investors trade in and out of shares aggressively. Some plan to buy and hold for the long term, but still need to sell shares occasionally, when a company’s prospects change, for example, or to re-balance the portfolio, or simply to access the money. Either way, most investors will sell shares at some time — and realizing a gain or loss… which has tax implications.
Those tax implications depend on whether The Australian Taxation Office (ATO) classes you as an investor or as a professional share trader.
We’ll start with Investors, because this covers most Australian share owners
Net profits from the sale of shares (sale price less purchase price) are subject to capital gains tax, but there’s good news, too.
- Costs incurred in buying or selling shares are taken into account in determining the amount of any capital gain.
- Any net losses from the sale of shares can be carried forward to offset against future capital gains made from the sale of shares.
- If you acquired the asset at least 12 months before selling it (and assuming you are an Australian resident) you are entitled to discount your net gain by 50% — so you only pay half the tax you otherwise would.
Of course, dividends also incur tax but not very much: have a look at Share investing – dividends and tax credits.
The rules for professional share traders are quite different.
- Purchased shares are regarded as trading stock, so the purchase price is an allowable income tax deduction.
- Receipts from the sale of shares constitute income rather than a capital gain.
- Costs incurred in buying or selling shares are an allowable income tax deduction.
- …and of course dividends and other similar receipts are included in assessable income.
Because the purchase price of shares is deductible for share traders, the ATO sets a high standard when it assesses if a person is ‘carrying on a business of share trading’ for the purpose of earning a profit from buying and selling shares (as opposed to receiving dividends). Emphasis is placed on “how the activity has actually been carried out”, and the assessment may include;
- the business plan
- the repetition, volume and regularity of the activities
- similarity to other trading businesses in the industry
- the keeping of books of 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 business.
As always, we suggest you seek personal financial advice before embarking on direct share investment, and particularly if you are considering setting up a share trading business
What are your thoughts?
Do you own shares directly? Have you benefited from discounted capital gains?
Join the conversation — leave a comment below and let us know what you’re thoughts are.
Are you a member yet? If not, find out why you should be.
If you’re already enjoying the benefits of membership, why not recommend MoneyTalk to a friend – and receive a free gift from us that could be worth thousands…