Are you share trader or share investor?
18 July, 2022 BY Bibek Nepal, CPA

Are you share trader or share investor?

If you have been engaged in the activity of buying and selling shares, you will need to determine if you are “investing” or “trading” in shares before lodging your income tax return.

Share trading and share investing are sometimes used interchangeably however, they are two distinct classifications with different tax implications.

It is important to understand the distinctions between being a share trader versus a share investor as profits, losses, and costs are treated differently under each classification.

According to ATO, if you hold shares as an investor, your shares are assets and are subject to capital gains tax when you sell them.

If you are a share trader, your shares are treated like trading stock in a business, any gains are treated as ordinary income, and losses and costs are treated as deductible expenses.

Any net losses from share trading activities can be offset by other assessable income such as salary and wages, subject to the passing of “Non-commercial Losses” rules.

The following factors have been considered in court cases to determine if you are a share trader or share investor:

➊ The nature and purpose of your activity
➋ The repetition, volume, and regularity of your activities
➌ Whether your activities are organized in a business-like way
➍ The amount of capital invested

You can always reclassify your activity and change from investor to trader or vice versa however, the treatment of your profits or losses will also change.

Whether you trade or invest in shares, you are required to keep records of all your transactions.

If you are unsure which classification you belong to or need help understanding the tax implications, get in touch with us to discuss your situation to avoid costly mistakes later.
 

Disclaimer: This article is provided as general information only and does not consider your specific situation, objectives, or needs. It does not represent accounting or tax advice upon which any person may act. Implementation and suitability require a detailed analysis of your specific circumstances. Before taking any action, consider your own circumstances and seek professional advice.

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