If you own shares or manage investments, these assets need to be accounted for in your annual taxes.

Individuals that act as share traders or investors often make the mistake of excluding these figures from their taxes, which can land you in considerable trouble with the ATO.

Liz Russell from Etax.com.au

A share trader is someone who conducts business activities for the purpose of earning income from buying and selling shares. An investor is a person, organisation or entity that invests capital with the aim of achieving a profit.

The main difference between a share trader and an investor is that traders must declare a profit or loss, and investors must declare capital gain or capital loss.

Just as a business owner is required to know the tax rules that apply to their business activity, so too should investors and share traders understand the rules that apply to them.

If you fit one of these descriptions as a share trader or investor, here’s a list of claims to consider when filing your taxes:

What share traders can claim:

  • The cost of buying and selling shares as part of the purchase price;
  • The cost of running the “business”, eg. use of office, stationery, consumables, computer, phone and internet. Depreciation can be claimed on items over $300;
  • The cost of borrowing to buy parcels i.e. interest; and
  • Revalue of stock on hand at the end of the financial year, consider the shares at cost or market value – it’s important to keep in mind that this becomes opening stock value on July 1st.

According to the ATO, a business includes any money making activity in which you don’t make an income as an employee. The ATO considers share trading as a business and therefore it should be approached in the same manner when doing your taxes.

As a share trader, you must claim the profit or loss on a sale and can use the loss against any other income to reduce your taxable income (as long as non-commercial loss laws are adhered to).

What investors can and can’t claim:

  • The cost of buying & selling shares is part of the cost base;
  • Interest on loans for buying shares could be deductible straight away, as opposed to being part of the cost base;
  • The cost of small deductions such as stationary, depending on volume;
  • Shares are nearly always valued at cost – you can’t use market value (except in limited circumstances such as inheritance);
  • The disposal of shares results in a capital gain or loss. The loss can be used unless it’s against gains. If there are insufficient gains then the loss is quarantined to future years when the gain may be made; and
  • You cannot claim the purchase price of shares as a tax deduction!

Australian residents are taxed on their whole income, whether those investments reside within Australia or overseas there are tax implications for owning, obtaining and disposing of shares and investments.

As a share trader or investor, understanding how tax works in relation to your investments will ensure you don’t pay more in taxes than you need to.

Liz Russell is senior tax manager at Australia’s largest online tax agent, etax.com.au, Australia’s largest online tax return service.

Liz has been with Etax since it launched in 1998 and brings more than 40 years’ tax experience to the table. Her expertise lies within complex individual tax returns and ensuring all of her clients walk away with the best possible refund while staying within ATO rules and regulations.