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Investment traders 043-03040000

This document outlines how to identify if a customer or the business in which they are involved, is an investment trader, and how to assess the income and assets for investment traders.

Identifying and assessing investment traders

Step	Action
1	Determining if customer conducts an investment trader business Investment traders buy and sell investments more frequently than a person who is merely an investor in the same product. The main activity is usually with listed securities (shares or another security listed on the stock exchange) within Australia or overseas, but can be other financial investments or cryptocurrency. Their objective in buying and selling investments is to make a profit from this trading. Generally, it will be accepted that a customer is an investment trader if their personal and/or business income tax returns (ITRs) specify investment trading as the main activity undertaken by the business or persons. Is customer considered an investment trader? Yes, go to Step 2 No, investments of the sole trader or partnership business are assessed as assets of the owner(s) of the business, and the income assessments are determined through application of the deeming provisions. To assess assets owned by a business that is not considered an investment trader: for sole traders, see Assessing sole trader income and Assessing sole trader assets for partnerships, see Assessing partnership income and Assessing partnership assets
2	Private trust or private company Is the investment trading undertaken through a private trust or private company? Yes: Private trusts and private companies are assessed by Complex Assessment Officers See Identifying and making suitable referrals to the Complex Assessment Officer (CAO) Procedure ends here No, go to Step 3
3	Income assessment Deeming does not apply to financial investments held as assets of a business where these assets are part of the operation of the business. The investments held by an investment trader clearly constitute assets that are integral to conducting the activities of such a business Where a business operates in more than one field, any investments held which relate to the other business activities are assessed under the normal rules applying to investments held by a business For investment traders, the income assessed from investment trading is the assessable business profit earned from these activities. If 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 See Offsetting profit and losses between businesses
4	Investment expenses As deeming does not apply to investments held as assets of a business operated as an investment trader, deductions allowed under section 1075 of the Social Security Act (SSA) 1991 are allowed against the profit earned from investment trading when determining the assessable income in regard to the business. This means that expenses such as interest, brokerage fees, bank fees and charges, are allowable business deductions. Deeming provisions in section 1075(2) of the SSA do not apply in these circumstances. For sole traders and partnerships, see Assessing sole trader income or Assessing partnership income.
5	Asset assessment The value of the portfolio of investments or stock held by an investment trader, as stated on the business or personal balance sheet, is assessed for assets test purposes. This value is considered to provide a reasonably accurate indication of the current market value of investments held by an investment trader. If 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 the business has other investments which are not held as part of the investment trading operations (that is, where the business operates in more than one field): These investments are subject to the usual rules applying to financial investments held by a business The assessment of these investments is dependent upon whether they are regarded as business assets, or the personal investments of the customer For the Income and Assets Test assessment of investments held by sole traders and partnerships respectively, see Assessing sole trader assets or Assessing partnership assets.
6	Notification and documentation After completion of the assessment, advise the customer of the following: How the determination was reached, for example, how valuation of the portfolio of investments has been made Their obligations to notify of any increase in the income or assets of the business The requirement to provide the annual business tax return, financial statements and customer's (and partner's if applicable) personal tax return Document details of the assessment undertaken and discussion with the customer on their record.