I was wondering if anyone knows the rules the ATO uses when classifying a normal investor in shares into a trader? Does it have anything to do with the $ amount invested? Does the amount of dividends have anything to do with it? Is there a certain number or $ amount of shares sold which triggers it off? If I was suddenly deemed to be a trader by the ATO would I lose my franking credits? Would I lose the 50% discount on sale in shares and, more importantly, real estate as well?
ATO Guide: Carrying on a business of share trading - Fact Sheet You will lose your 50% discount on disposal of shares, as if you are in the business of share trading shares are deemed to be trading stock, so sales become income rather than a capital transaction. It will not effect your residential property discounts though. Dividends remain as income and imputation credits are not effected.
Don't forget the ATO advice is not 'unbiased'. Sure scale, repetition, system are important. Also, the definition of trading stock is very broad - but requires there to be a business in the first place. To retain your investor status you need to show that the acquisition of shares was not for profit making by sale. You can still sell over-priced stock as nobody would expect an investor to hold shares that are likely to fall in price. i.e. you can argue you are rebalancing your portfolio on a regular basis or continually developing an investment plan if you are churning. BUT when it appears you are merely profit taking and reinvesting on a regular basis you leave yourself open to being regarded as a business As you see there is no clear line in the sand. Cheers, Rob
I forgot to mention that if a small scale negatively geared investor was suddenly deemed by the ATO to be a 'business of trading' then this could be bad news all round. Division 35 might prevent you deducting business losses against other (non-business) income and ruin your financial plans. You would need to check these facts as I have not had to deal with this situation !!! Cheers, Rob
It seems to me that the ATO leans more towards classifying people as investors rather than share traders. Unless you specifically want to be classed as a business, I wouldnt really worry too much about it
You are absolutely right. I have seen pretty extreme examples of 'share investors'. However, this seems a matter of unwritten policy rather than law. Should there be a change of Treasurer or Government then will this remain ? At least a written statement can be relied upon. This seems inconsistent with property development for example. Finally the ATO is starting to crack down on systematic abuse of the Main Residence Exemption by owner-builders, and 'investors' subdividing and improving property. It might have to do with how much revenue the Government thinks it is losing. Cheers, Rob
