Sharesight Portfolio Tracker & Tax Reporting
- Free for investors with less than 10 holdings
- Comprehensive dividend and tax reporting
- Works alongside your trading platform
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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.
The ATO defines a share trader as, "a person who carries out business activities for the purpose of earning income from buying and selling shares.”
Regular investors are taxed differently; while traders can claim losses on the market as a tax deduction, but if you’re an investor, your losses are deducted from your capital gains only.
Whether you're a trader or investor, this guide explains how much tax you need pay and whether you're eligible for benefits.
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 when deciding to classify you as a share trader or investor. This involves whether you’re trading regularly, how much you trade and whether this is comparable to other share traders.
The ATO also looks at your business or trading plan. This should include information such as why you’ve decided to hold and sell shares, in addition to your assessment of potential investments.
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.
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.
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.
If you're a casual investor, your profits are calculated as total profits – 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.
It's important to note that 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.
Any profits you make from share trading is added to your total taxable income. The tax you pay will depend on what tax bracket you fit into based on this total income.
However there are big tax benefits to long-term investing over short-term investing. If you hold shares for longer than 12 months, 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.
Franking credits can be used by 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.
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.
Tax implications are different for traders and investors. The ATO will classify you as a trader if you can answer yes to the following:
You have a share trading plan if you can answer yes to the following:
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.
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