Share trading tax guide

Find out about capital gains tax on shares and what to do at tax time if you're an investor.

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It's tax time again which means a couple of things if you trade shares – you might need to pay capital gains tax and you may be able to claim deductions.

Depending on how often you trade shares and how the Australian Tax Office classifies you, you could be eligible to claim tax benefits such as franking credit rebates and deductions on trading-related costs.

Whether you're a trader or investor, this guide explains how much tax you need pay and whether you're eligible for benefits.

Do I need to pay tax on shares?

Yes, you need to pay tax on any profits that you've made from share trading during the year – this is called capital gains tax (CGT). Any profits that you make are added to your total taxable income for the year. So, if you're paid a salary of $49,0000 and you make $1,000 from trading shares – your total taxable income is $50,000.

Dividends are also included in your total taxable income – in fact, the ATO will already have a record of the dividends you've earned throughout the year and will have automatically added this to your income.

Profits aren't taxable until you actually sell your shares. If you sell before June 30, your profits will be included as your taxable income this financial year and if you sell after June 30, it's added to the following tax return.

Note: If you're classified as a 'share trader' for business purposes, the tax implications are a little different because you can claim any losses accrued from trading shares as a tax deduction (see below).

How to calculate tax on shares sold

Any profits you make from share trading is added to your total taxable income. The tax you pay on your shares will depend on what tax bracket you fit into based on this total income.

If you're a casual investor, your profits are calculated as total profits minus total losses. So, if you bought 100 Afterpay (APT) shares at $10 per share and sold them all at $20, your taxable profit is $1000. But say a month later you bought 100 APT at $40 and sold them at $30, your total taxable profit (if you made no other trades) would be $0.

Dividends are also included. So say you bought CBA shares this financial year and decided not to sell. Then CBA paid a dividend and you made $100 in dividend profits. Assuming the first scenario where you sold APT at $10, your total taxable income is $1100.

There are also tax benefits to long-term investing over short-term investing. If you hold shares for longer than 12 months before selling, you're only taxed on 50% of the profits you make from those shares. If you buy and sell within the same financial year, your total profits are included as taxable income.

How do I lodge a tax return for shares?

Your tax return for shares is included as part of your regular tax return after June 30.

When you lodge your annual tax return, you'll need to report any capital gains you've made on buying and selling shares throughout the financial year. Any dividends you earn will have already been added to your taxable income by the ATO.

At the end of the financial year, your broker or online share trading platform will send you a tax statement with the total profits you've earned. If you're lodging your own tax return, you'll need to include this number in your report. If you use a tax accountant, send the tax statements to them to work out.

If you use multiple brokers, it's a good idea to use a portfolio tracker to track total capital gains across all platforms.

How do I pay tax on robo-advice and micro-investment apps?

If you use a robo-advice or micro-investment platform such as Raiz Invest or Spaceship, you are taxed on any profits you make from your portfolio.

Like regular share trading, your profits (minus losses) are added to your total taxable income. Your platform will typically send a tax statement each year. If you've been given dividend payments, these are automatically filed with the ATO.

What are franking credits?

Franking credits can be used by Australian shareholders as a tax break on share dividend payments. Franking credits stop dividend payments from being taxed twice and can be claimed as a tax refund by shareholders depending on the shareholder’s marginal tax rate.

You can read more about franking credits in our comprehensive guide.

How to pay tax on US shares

You need to pay capital gains tax (profits minus losses) on US shares in the same way you do Australian shares, however currency conversions add another element to the equation.

When buying and selling US stocks, the capital gains is calculated immediately at the moment the trade occurs, not when you convert your currency back into AUD from USD.

The CGT calculation is made by converting USD to an AUD amount at the time of the transaction.

So say you purchased US$1,000 of Tesla shares, then sold those shares for US$1,000 a few months later - your capital gains in USD may appear to be $0, but in AUD amounts you may have either profited or lost income.

How does the ATO classify share traders and share investors?

There are different tax implications depending on how often you trade shares and whether you can be classified a 'share trader' for business purposes.

The ATO defines a business for tax purposes as any money making venture where you’re not an employee. Share trading fits this definition; however, there are no black and white rules about who is a share trader and who isn’t. The ATO gives some guidelines but ultimately makes decisions on a case-by-case basis.

The ATO assesses the nature of your trading activities and your business or trading plan when deciding. This information includes how often you trade, why you make certain trade decisions and an assessment of potential investments.

What are the tax implications of share trading?

If you can satisfy the ATO’s definition of being a share trader, you can claim any gains from the share market as your personal income and any losses as a tax deduction. If you’re a regular investor, your losses are deducted from your capital gains only.

Casual investors can't claim on any losses and need to pay attention to Capital Gains Tax (CGT) and the timing of the sale of shares. Any profits made after June 30 won’t be taxed until the following year.

How does the tax office define a trader?

Tax implications are different for traders and investors. The ATO will classify you as a trader if you can answer yes to the following:

  1. You purchase shares on a regular basis in a routine way. The ATO will also look at the volume of shares traded and the size of the investment(s).
  2. You have a trading plan. The ATO will look at whether you have a registered business and whether you have business premises and all the relevant qualifications and licences.
  3. You make use of share trading techniques, such as market analyses.
  4. You have a Plan B in case your shares run at a loss.

What is a share trading plan?

You have a share trading plan if you can answer yes to the following:

  1. You carry out analyses of future investments.
  2. You look at the market to identify areas of potential gain.
  3. You make a decision to buy or hold shares based on future value.

Tax deductions

Share traders

  • Money from the sale of shares and share dividends are included in assessable income.
  • The costs of buying and selling shares can be claimed as a tax deduction.
  • Share traders can claim the costs of items such as computers, as they are necessary to making trades and keeping records. You can also claim depreciation on items costing more than $300.

Share investors

  • Can’t claim the purchase price of shares as a tax deduction.
  • Capital losses are subtracted from capital gains.
  • Any net profit is subject to CGT.
  • Can claim deductions on the prepayment of expenses such as internet fees, seminars or subscriptions for up to 12 months in advance.

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Important: Share trading can be financially risky and the value of your investment can go down as well as up. “Standard brokerage” fee is the cost to trade $1,000 or less of ASX-listed shares and ETFs without any qualifications or special eligibility. If ASX shares aren’t available, the fee shown is for US shares. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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