Share traders 043-03040000

In deciding whether a person is a share trader the Australian Taxation Office (ATO) takes into account:

• the frequency of buying and selling investments
• the objective of buying and selling investments

Share traders generally buy and sell listed securities. A listed security includes shares and other products traded on a stock exchange, either in Australia or overseas. In determining whether a person is a share trader, the definition of investment also includes all types of tradable securities and investments, not only investments traded on a stock exchange. Therefore, in addition to company shares, a share trader may deal in other products that are regarded as financial investments.

If a person or business is a share trader they will be trading (buying and selling) investments more frequently than a person or business entity which is merely an investor in the same product. In addition, the objective in buying and selling investments is to make a profit from this trading, whereas an investor holds the investment for the return that the investment itself will provide. It is not relevant whether the investments are traded within Australia or overseas or on a stock exchange.

If the customer is involved in a sole trader or partnership business structure which is considered to be undertaking business as a share trader, then the customer is regarded as a person who carries on a business, and the profit earned from this activity is regarded as business income.

Generally, it will be accepted that a customer is a share trader, if their personal and business income tax returns (ITRs) specify investment trading as the main activity undertaken by the business.

A customer who is considered to be a share trader is regarded as a person who carries on a business and the deeming provisions in section 1075(2) of the Social Security Act 1991 do not apply to the assessment of income from investments held by the business. The profit of the enterprise is assessed under the rules relating to assessment of business income, including section 1075 of the Social Security Act which deals with permissible reductions of business income. This means that expenses such as brokerage fees, bank fees and charges, are allowable as deductions as they are costs directly related to the income generated by the business.

Where the business receives a small amount of income from activities other than investment trading, the usual rules regarding offsetting losses against profits from other business activities apply.

• The balance sheet value of the portfolio of investments held as assets of a share trader is assessed for Assets Test purposes
• Taking into account the nature of the activities undertaken by a share trader, this balance sheet value is considered to provide a reasonably accurate indication of the current market value of investments held by a share trader
• Where the business has assets other than investments, these are assessed at current market value and included when determining the overall value of the business

If a person or business is not considered to be a share trader, that is, they are an investor; the normal means testing rules for financial investments apply. Investments of a sole trader or partnership business are assessed as financial assets of the owner(s) of the business, and the income assessments are determined through application of the deeming provisions. Other procedures cover the assessment of income and assets of financial assets of businesses that are not considered share traders.

Once the assessable income and assets in respect of a business operating as a share trader has been determined, the customer should be advised in writing of the assessment and how the determination was reached. The advice should also inform the customer of their obligations to notify of any increase in the income or asset position of the business.

The customer should also be advised of the requirement to provide the annual business income tax return (ITR), financial statements and customer's (and partner's if applicable) personal ITR.

If a person or family company is trading in shares (securities or investments) owned by themselves or their family this would not considered to be gainful work for the purpose of passing the work test for the PBS.