An ATO case in early 2020 has again raised the question as to whether the sales income of a shareholder is business income of a share trader or capital proceeds for a share investor. We have summarised the differences below:
The following may identify you as a share investor –
- Hold share investments for the benefit of receiving dividends as income
- Trading of shares is irregular and infrequent.
- Simple undertakings with little record keeping or market research
- Intent to earn a profit from dividends and sale proceeds but do not carry out business activities.
- Engaged in another full-time profession
The following may identify you as a share trader –
- Buy and sell share investments with the purpose of making a profit.
- May have a business plan to document investment methods and strategies.
- Engages in a high volume of trades.
- Trades are business like in manner with a degree of sophistication, such as:
- Repetitious trades of similar transactions,
- Regular and routine like manner,
- High level of study and analysis of trends, prospectuses and seeks advice from experts,
- Sufficient and accurate record keeping as would be expected of a business activity,
- Maintenance of an office for trading activities.
These two categories have differing tax treatments for items such as; extent to which proceeds are assessable, deductibility of losses and related expenses, access to capital gain discounts and treatment of trading stock assets.
Generally, you fall into one category or the other and a move between the categories can have significant tax implications. If you would like additional information about how this might affect your tax return, please do not hesitate to contact our office.