BONUS Article; Share trader or investor, and trading stock versus capital asset

Investment products may be held as trading stock by a taxpayer carrying on a business of share trading or options trading. However, whether a particular parcel should be treated as trading stock must be determined on a case-by-case basis.

Generally, the tax issues facing share traders versus passive investors are summarised below.

Tax treatment of transactions, returns and related items
Event/item Share trader Passive investors
Gain on disposal Sale on trading account Capital gain
Loss on disposal Sale on trading account Capital loss
Dividends received Assessable income

When received but may be accounted for when derived (ie when dividend is declared)

Assessable income

When received

Share acquisition Purchases on trading account

Allowable deduction

Capital cost

No immediate deduction allowed

Broker fees Purchases

Allowable deduction

Capital cost

No immediate deduction

GST on broker fees Financial supply

Reduced input tax credits

Capital cost

No immediate deduction

No reduced input tax credits as no enterprise

Share investment course
pre-ownership
If business commenced then allowable deduction, however nexus must be established Capital cost

No immediate deduction

Share investment course
post-ownership
Professional development

Allowable deduction

Investment expenses

Allowable deduction

Technical books Professional development

Allowable deduction

Investment expenses

Allowable deduction

Share trading software Business expense

Allowable deduction
(if not an establishment cost)

Investment expenses

Allowable deduction

Interest on margin loan Interest expense

Allowable deduction incurred to obtain assessable income

Investment expenses

Allowable deduction

Prepaid interest Deduction up to 12 months if s82KZM satisfied Deduction up to 12 months if s82KZM satisfied
Bank charges on margin loan Bank fees

Allowable deduction

Investment expenses

Allowable deduction

Costs to establish loan Borrowing costs

Allowable deduction available over five years

Investment expenses

Allowable deduction available over five years