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.
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Tax treatment of transactions, returns and related items |
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|
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 |
If business commenced then allowable deduction, however nexus must be established |
Capital cost No immediate deduction |
|
Share investment course |
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 |
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 |
