Fred is a share trader - How complex is his tax ?

Fred says he is a share trader. He buys frequently and trades with frequency - A few times a day. He rarely ever holds stocks for more than a few days and changes positions often. Fred considers himself a dray trader.

How complex is his tax ? Actually its quite simple. We need to know in TOTAL just four simple numbers In total.Not even for each company.....Can be the same for all crypto, all currencies etc. Not currency by currency. Where applicable the total may need to be converted using a exchange rate. This can be a flat rate advised by the ATO if required and may be quite simple.

1. Total sales ex brokerage (ie disregard brokerage on all reports !!) 3,000,000
2. What was the market value of his portfolio on the first day of the tax year ? $0
3. What is the cost of all shares etc acquired incl of brokerage $2,960,000
4. What is the market value of shares on hand at 30 June 2019 $0

Profit is
Sales (1) LESS cost of shares sold where
Cost of shares sold is determined by 2 + 3 - 4

eg $3,000,000 - ($0 + $2,960,000 - $0)
$40,000 profit

Fred may also have to consider non-commercial loss rules if he incurs a loss. This is more easily met for a share trader. Fred may also have direct costs of operating a share trading business eg software, IT, subscriptions etc. Fred may also be able to reduce business income by claiming a % of his property occupancy costs for conducting a business at home in a dedicated office.

However all share traders should carefully consider and plan for CGT assets. This can be blended with trading stock and any discount arguably lost. We may recommend a different structure (trust ?) or person (spouse?) hold these assets apart from trading stock

 

Fred may have a problem if his taxable income is greater than 250k and he has non commercial losses.

The income requirement is passed if the individual has an adjusted taxable income of less than $250,000. This is calculated as the sum of taxable income (excluding business losses), reportable fringe benefits, reportable superannuation contributions, total net investment losses and any child support that they pay.

 

Thanks for the insights. If someone has made less than 20 trades for the year, and has made a loss of around $100USD, what there be a cap on the direct costs that would be claimable for operating this business? Including costs incurred via the trading platform for minimal usage?

 

That doesnt sound like a business. More likely a capital loss

 

Do you mean sales after brokerage (ie net of brokerage)?

Otherwise where would you include the brokerage on sales?

 

I would also want to know what the cost of shares at 30 June 2019 was as well...assuming there was still trading stock on hand at 30 June.

That way trading stock on hand at 30 June can be valued at either cost or market value which ever is more tax effective which will help to defer tax.

 

You dont. Sales means the net price you receive as proceeds after brokerage is deducted. Purchase price is the cost after brokerage is added. Brokerage is just part of the cost.

 

Most share traders wont have this type of profit since their short & quick positions dont generally hold large realised profits.

 

Thanks for the clarification. What if no positions were held for more than 3 hours?

 

Share trading tends to look at a business like approach, volume and frequency of transactions and other similar factors. The duration of how long a asset or interest is held is not itself a pertinent factor on its own. If a taxpayers position is uncertain tax advice or a binding private ruling may be prudent to ensure the correct basis is used and the manner of calculating & reporting income is not reckless.

Its possible there is a isolated profit making intention but the taxation outcome for this are not different to the method used to determine a short term capital gain. The issue may be whether a CGT loss is offset. If it was share trading income it may not be eligible as its not a capital gain but a revenue gain. A loss may need to meet a non-commercial loss test v's carry forward as a CGT loss.

 

Bob is a share investor. Bob linked his share portfolio with sharesight and it tracks all the trades and dividend income. Bob generates Income and CGT reports from Sharesight which factor in brokerage and he sends these to his accountant (who incidentally is @Paul@PFI). Bob and @Paul@PFI are happy.

 

Bob is a wise wombat

 

you said "ex brokerage" which I take to mean excluding brokerage. Therefore you are not including the cost of it.

You must have meant incl brokerage.

 

I often find sharesight isnt correct.

 

Sales of shares dont include brokerage because the number is less than the value before brokerage.

 

When you said "ex" its easy to interpret that as meaning you are not counting it at all!
I know what has to happen but it could be easy for someone (who actually did) interpret your "ex" differently.

In other words expense = Shares bought x price, plus brokerage.
Income = shares sold x price, minus brokerage
No?