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 |
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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