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.

Tax treatment of transactions, returns and related items
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 pre-ownership	If business commenced then allowable deduction, however nexus must be established	Capital cost No immediate deduction
Share investment course post-ownership	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 (if not an establishment cost)	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

 

 

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