Tax Deductions on Shares

WHK October 2010 eNewsletter.

Tax Deductions on Shares

Over the last 12 months I have made significant losses on my shares. Can I claim a tax deduction for these losses?

Normally shares are a capital asset and therefore any losses are dealt with under the Capital Gains Tax (CGT) rules. These rules require that any capital losses from the sale of shares can only be deducted from capital gains you have made. If you don’t have enough capital gains in the current year to offset all losses, then you have to carry forward the excess to be used against future capital gains.

The only way you can claim a tax deduction for your share losses against other income, such as wages or investment income, is to be a share trader. The Tax Office takes a strict view of what you need to do in order to be a share trader.

In their eyes, a share trader is actively involved in buying and selling shares on a full-time basis. You must have a high turnover of shares, regularly and repeatedly buying and selling with the intention of making a profit. You must also have a sophisticated, business-like and systematic method of determining not only which shares to buy and sell, but also the price at which to buy and sell them.

If you can satisfy the ATO that you are in the business of share trading, you can claim a deduction for the shares purchased during the year. You can also claim a deduction for the decline in value of the shares you hold as at year end. The converse to this is that you have to bring in as income any increase in value of the shares you hold at year end.

Given the attention the ATO gives to share traders it is important that you contact your tax agent to discuss how these rules apply to your specific circumstances.

Armidale Office:
90 Rusden Street, Armidale NSW 2350
T: 02 6776 5100

Byron Bay Office:
17 Lawson Street, Byron Bay NSW 2481
T: 02 6685 7532

Casino Office:
157 Barker Street, Casino NSW 2470
T: 02 6661 2450

Glen Innes Office:
2/122 Bourke Street, Glen Innes NSW 2370
T: 02 6732 9300

Inverell Office:
3 Glen Innes Road, Inverell NSW 2360
T: 02 6728 8800

Lismore Office:
53 Carrington Street, Lismore NSW 2480
T: 02 6627 3500

Walcha Office:
Fitzroy Street, Walcha NSW 2354
T: 02 6777 4900

Yamba Office:
5/30 Coldstream Street, Yamba NSW 2464
T: 02 6603 0250

Ballina Office:
51 Tamar Street, Ballina NSW 2478
T: 02 6618 3550

Cabarita Beach Office:
3/35 Coast Road, Cabarita Beach NSW 2488
T: 02 6676 3055

Coffs Harbour Office:
107 West High Street, Coffs Harbour NSW 2450
T: 02 6653 0850

Grafton Office:
24 Queen Street, Grafton NSW 2460
T: 02 6640 9200

Kyogle Office:
1 Wyangarie Street, Kyogle NSW 2474
T: 02 6632 0400

Murwillumbah Office:
15A Commercial Road, Murwillumbah NSW 2484
T: 02 6672 5577

Warialda Office:
39 Hope Street, Warialda NSW 2402
T: 02 6728 9920

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This newsletter is provided by WHK and its member firms and WHK Financial Planning (WHKFP) as an information service only and does not constitute financial product advice. WHK & WHKFP provide no warranty regarding the accuracy or completeness of the information. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice by WHK & WHKFP. Both WHK & WHKFP assume no obligation to update this document after it has been issued. Except for any liability which by law cannot be excluded, WHK & WHKFP, its Directors, employees and agents disclaim all liability (whether in negligence or otherwise) for any error, inaccuracy in, or omission from the information contained in this document or any loss or damage suffered by the recipient or any other person directly or indirectly through relying upon the information.

Section 945A of the Corporations Act requires financial planners to obtain information from clients before making recommendations. Equivalent requirements apply also to accountants in relation to the provision of taxation advice. Accordingly, clients and readers should not act only on the basis of material obtained in this newsletter because the contents are of a general nature and therefore do not take into account each person’s individual circumstances and may be liable to misinterpretation. Do not act upon any of the information contained within this newsletter without first obtaining specific advice from your local WHK Adviser.

WHK Group Pty Ltd ABN 84 006 466 351 and WHK Financial Planning Pty Ltd, holder of Australian Financial Services License No. 238244 ABN 51 060 092 631.

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