Shareholding as investor…
or share trading as business?
Since the Covid-19 pandemic started, there have been tens of thousands of Australian stranded at home taking up new pastimes; including trying to make money by trading shares. But there is always a dilemma with new investors on the tax treatment of shares. The tax treatment of shares depends on whether you are holding shares as an investor or carrying on a business as a share trader.
Please refer to the table below to determine if you are shareholding as an investment or share trading as a business:
| Shareholding as investment | Share trading as business |
| · the cost of purchase of shares is not an allowable deduction against current year income, but is a capital cost
· receipts from the sale of shares are not assessable income – but any capital gain on the shares is subject to capital gains tax · a net capital loss from the sale of shares can’t be offset against income from other sources, but can be offset against another capital gain or carried forward to offset against future capital gains · the transaction costs of buying or selling shares is not an allowable deduction against income, but are taken into account in determining the amount of any capital gain · dividends and other similar receipts from the shares are included in assessable income · costs (such as interest on borrowed money) incurred in earning dividend income are an allowable deduction against current year income. |
· receipts from the sale of shares constitute assessable income
· purchased shares are regarded as trading stock · costs incurred in buying or selling shares – including the cost of the shares – are an allowable deduction in the year in which they are incurred · dividends and other similar receipts are included in assessable income.
|
How to determine whether you are carrying on a business of share trading
The following factors have been considered in determining whether a person is a share trader:
| Factors considered in court cases | Explanation |
| Nature of the activities | – Whether they have a purpose of profit making |
| Repetition, volume and regularity | – Similarity to other business in your industry |
| Organisation in a business-like way | – Keeping accounts, records of trading stock, business premises, licenses or qualification, a registered business name and an Australian Business number |
| Amount of capital | – Initial investment |
Still confused? At Venture Private Advisory, we hope to assist you to get the best outcome. We can advise you on the most suitable business structure and set up appropriate accounting software for record keeping. Call our office to book a meeting on 7078 3505.
By Anurag Kakria – Accountant – Venture Private Advisory