shares

Share investing versus share trading

Understanding Share Investing vs Share Trading: A Guide to ATO Classifications

Key tax differences between share investors and traders explained

A commonly asked question we receive at Allan Hall is how the ATO classifies a share investor vs a share trader.

Typically clients make a profit and they want to be assessed as an ‘investor’ so that the capital gain is taxed with any applicable discounts. Conversely if they incur a loss we receive questions as to whether they are classified as a ‘trader’ so that the losses can be deducted against other income they have earned.

Tax treatment

If you hold shares as an investor:

  1. your shares are assets and are subject to capital gains tax when you sell them
  2. your costs are taken into account at the time you sell your shares
  3. if you have a capital loss you can use it to offset capital gains but not to offset income from other sources
  4. income is earned from dividends and similar receipts.

If you are a share trader:

  1. your shares are treated like trading stock in the ordinary course of a business
  2. your gains are treated as ordinary income
  3. your losses and costs are treated as deductible expenses in the year they are incurred.

How to determine if you are a share trader

Determining if you are a share trader is the same as determining whether your activities are considered to be carrying on a business for tax purposes.

Under tax law, a business includes ‘any profession, trade, employment, vocation or calling, but does not include occupation as an employee’.

To determine whether you are a share trader or a business of trading shares, the following factors have been taken into account in court cases:

  1. the nature and purpose of your activities – typically the ATO wants to see a business plan that details the intention to make a profit and the ways this would be achieved
  2. the repetition, volume and regularity of your activities – the higher the volume the more likely you are carrying on a business
  3. whether your activities are organised in a business-like way – advice received, company analysis methodology, record keeping etc  
  4. the amount of capital invested

The above is a brief overview of the issues involved. Should you require further advice please contact your Allan Hall advisor.

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house key

Landlords targeted in expanded ATO crackdown

ATO Expands Property Management Data Matching Program to Strengthen Tax Compliance

The Australian Taxation Office (ATO) is expanding its Property Management Data Matching Program as part of its ongoing commitment to enhance tax compliance.

This program plays a critical role in identifying and addressing potential discrepancies in rental income reporting, particularly within the property management sector.

Key points

  • Expansion of Data Matching Program: The ATO has expanded its program to better track rental income reporting and ensure tax compliance within the property management sector
  • Enhanced Data Collection: The program now collects more detailed rental data, cross-referencing it with ATO records to identify under-reporting or non-compliance
  • Focus on Compliance: Property owners and managers are advised to maintain accurate records, as the ATO’s enhanced capabilities increase the likelihood of detecting discrepancies.

The Property Management Data Matching Program enables the ATO to collect and analyse a wide range of data from property management agencies across Australia. This includes detailed information on rental income, property expenses and other financial activities related to investment properties. The data collected is cross-referenced with other ATO records to identify cases of under-reporting or non-compliance with tax obligations.

Objective and Scope

The primary objective of the expanded program is to ensure that all property owners and managers accurately report their income and meet their tax obligations. By gathering data from property management software, rental bond authorities and other relevant sources, the ATO can detect inconsistencies between reported income and actual rental earnings. This helps to identify individuals and entities who may be attempting to under-report their income or avoid their tax responsibilities.

Implications for Property Owners and Managers

The program covers a broad spectrum of rental properties, including residential, commercial and short-term accommodations.

Property owners and managers are advised to ensure that their records are accurate and up to date. The ATO’s expanded data matching capabilities mean that discrepancies in rental income reporting are more likely to be detected, leading to potential audits, penalties or other compliance actions.

By leveraging advanced data matching technology, the ATO aims to ensure that all taxpayers meet their obligations. Read more »

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car buying private or business

Changes to car thresholds from 1 July

The following car threshold amounts will apply for the 2024–25 financial year.

Income tax

  • The car limit for 2024–25 is $69,674. This is the highest value you can use to calculate depreciation on a car where both of the following apply:
    • you use the car for business purposes
    • you first use or lease the car in the 2024–25 income year.
  • As a business owner, you can claim a tax deduction for expenses for motor vehicles you use for business purposes.
  • If you use a motor vehicle for both business and private purposes, you can only claim a deduction for the business part. You must be able to show the percentage you claim as business use and have records to support your claim.

Goods and services tax (GST)

  • If you buy a car and the price is more than the car limit, the maximum GST credit you can claim (except in certain circumstances) is one-eleventh of the car limit. For the 2024–25 income year, the maximum GST credit you can claim is $6,334 (that is, 1/11 × $69,674).
  • You can’t claim a GST credit for any luxury car tax you pay when you buy a luxury car, even if you use it for business purposes.

Luxury car tax (LCT)

  • The LCT threshold for 2024–25 is:
    • $91,387 for fuel-efficient vehicles. This is in line with an increase to the motor-vehicle purchase sub-group of the Consumer Price Index (CPI)
    • $80,567 for all other luxury vehicles, in line with an increase in the ‘All Groups’ CPI.

If you’re looking to buy a luxury car, remember to be cautious of those who offer to buy one from a dealer on your behalf at a discount. This may be a scheme to evade LCT. You may be at risk if they don’t have the right insurance or if the car is damaged or defective.

To find out more about LCT, including when you need to apply it and what’s included in the LCT value of a car, visit the Luxury car tax page on the ATO’s website.

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house key

Foreign residents selling property in Australia

Foreign resident capital gains withholding (FRCGW) of 12.5% applies for all property sales of AUD$750,000 or more.

At a minimum, that is AUD$93,750 being withheld from the sale and paid to the Australian Tax Office, unless there is an approved variation.

The most common reasons why a seller may apply for a variation include:

  • making a capital loss
  • not having an income tax liability
  • foreclosure.

In 2023 over 60% of applications for variations were lodged late, affecting settlement. When clients are too late in applying, the conveyancer or solicitor has no choice but to withhold 12.5%.

Tips

  • Include the sales contracts with the variation application
  • Variations must be lodged online at least 28 days before property settlement to ensure processing time
  • The main residence exemption doesn’t apply to foreign residents
  • Australian residents for tax purposes must have a clearance certificate before settlement to prove their residency for tax purposes, so no withholding occurs.

CONTACT ALLAN HALL INTERNATIONAL SERVICES

health insurance

Income thresholds are changing for the private health insurance rebate

From 1 July, the income thresholds for private health insurance rebate purposes will increase.

Income thresholds

  • The private health insurance rebate is income tested
  • This means that if your income is higher than the relevant income threshold, you may not be eligible to receive a rebate
  • Your rebate entitlement depends on your family status on 30 June
  • Different thresholds apply depending on whether you have a single income or a family income.

When you lodge your tax return, we calculate your income for surcharge purposes and determine your rebate entitlement.

Your entitlement is also based on the age of the oldest person covered by the policy.

The income thresholds used to calculate the Medicare levy surcharge and private health insurance rebate have increased from 1 July 2024.

2024–25 Income thresholds
Family statusBase tierTier 1Tier 2Tier 3
Single$97,000 or less$97,001 – $113,000$113,001 – $151,000$151,001 or more
Family$194,000 or less$194,001 – $226,000$226,001 – $302,000$302,001 or more

Note: The family income threshold is increased by $1,500 for each Medicare levy surcharge dependent child after the first child

Family status on 30 June

Your family status on the last day of the income year (30 June) determines whether the single or family income thresholds apply to you. The information below provides guidance to when single or family thresholds apply.

Depending on your situation, your income may be tested against either the Single income thresholds or Family income thresholds.

Single income thresholds

If you are single on the last day of the income year and have no dependents, you are income tested against the single income thresholds.

This applies even if you had a spouse for the majority of the year, as long as you were single on the last day (30 June) of the income year.

If you separated from your spouse during the financial year and remain single with no dependents on 30 June, your rebate entitlement is calculated only on your own income.

Your entitlement to a private health insurance rebate is based on your income for surcharge purposes.

If you were single on 30 June, but had dependent children, you are considered a family and will be income tested using the family income thresholds.

Family income thresholds

If you had a spouse on the last day of the income year (30 June), your income will be tested against the family income thresholds. Your entitlement to a private health insurance rebate is assessed on your and your spouse’s combined income for surcharge purposes.

The family income thresholds also apply if:

  • you are a single parent with one or more dependents
  • you don’t have a spouse on the last day of the income year and you either maintain a dependent child or children or contribute in a substantial way to the maintenance of a dependent child.

If your spouse died in the income year and you were single on 30 June with no dependants, your and your spouse’s income is used for surcharge purposes to determine your entitlement under the family income thresholds.

If you have two or more children, the family income threshold is increased by $1,500 for every Medicare levy surcharge dependent child after the first child.

Note: Dependent children’s income is not included when calculating family income. Medicare levy surcharge dependent child is different to dependent persons who may be covered by your private health insurance policy.

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Parliament House

Tax cuts Bill passes through Senate

Revised tax cuts pass both houses

A broader range of taxpayers are set to receive tax cuts from 1 July, with Labor’s tax cuts bill passing through the Senate.

The bill to implement Labor’s revised tax cuts has now passed both houses of parliament.

Prime Minister Anthony Albanese announced in late January that Labor would make amendments to the stage three tax cuts to deliver broader and better outcomes to all taxpayers.

The revised measures involved cutting the lowest rate of income tax from 19 per cent to 16 per cent and the second lowest from 32.5 per cent to 30 per cent, increasing the Medicare levy threshold and the top 45 per cent tax threshold.

Treasury Laws Amendment (Cost of Living Tax Cuts) Bill 2024 passed through the Senate without amendment.

The Senate also passed the Treasury Laws Amendment (Cost of Living—Medicare Levy) Bill 2024, which increases the Medicare levy and Medicare levy surcharge low-income threshold amounts for individuals, families and individual taxpayers and families eligible for the seniors and pensioners tax offset.

Read more detail about this topic

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calculator on AUD$

Using business money for private purposes

2 steps to take

If you use money or assets from your company or trust for private purposes and don’t account for the transactions correctly, there can be tax consequences.

That’s why it’s important to get it right.

Business money and assets you take or use for private purposes can include:

  • salary and wages
  • director fees
  • fringe benefits, such as an employee using the company car
  • dividends paid by the company to you as a shareholder (that is, distribution of the company’s profits)
  • trust distributions if your business operates under a trust and pays you as a beneficiary
  • loans from a trust or company
  • ad hoc drawings or takings
  • allowances or reimbursements of expenses you receive from a trust or company.

If you’ve used business money or assets from a company or trust for private purposes, follow these steps to avoid unintended tax consequences:

  1. Keep accurate records of the transactions, and
  2. Account for the transactions in the company or trust tax return and your individual tax return, if applicable.

Remember, there are different reporting and record-keeping requirements for each type of transaction, so make sure you know how to keep accurate records to suit your circumstances.

You can also practise good record-keeping habits by regularly cross-checking your records against the original documents so you can fix mistakes earlier and monitor your business’s cash flow.

Taxpayers are ultimately responsible for keeping business records and what you claim in your tax returns, however Registered Tax or BAS Agents like Allan Hall on the Northern Beaches can help and advise on your tax.

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taxation & accounting

Business income: it’s not just cash

Clothing, jewellery, gaming products, flights and crypto assets are just some of the things you might have to account for in your tax return as part of your business income.

If you received these or any other non-cash benefits instead of money for your goods or services, or as a tip or gift – you must record them as income at their market value.

This means you record the cash price that you would normally have to pay for those goods or services.

You may be able to reduce the assessable amount of a non-cash benefit you’ve received, by the amount you would have been able to claim as a deduction if you had purchased the item to be used in carrying on your business.

It’s important to report your regular forms of income

Such as:

  • cash and digital payments
  • vouchers or coupons
  • business investments
  • online and overseas business activities
  • services you provide using your personal effort and skills (personal services income)
  • the sharing economy, such as ride-sourcing
  • assessable government grants and payments
  • the value of trading stock you take for your own use
  • payments from insurance claims.

There are some payments that aren’t assessable income, so you don’t need to include them on your return, such as:

  • non-assessable non-exempt (NANE) government grants
  • bona fide gifts or inheritance
  • GST you’ve collected
  • money you’ve borrowed or contributed as the business owner.

Always keep accurate and complete records to prove the income you report and the expenses you claim as deductions.

Remember, registered tax professionals like Allan Hall in Brookvale can help and advise on your tax.

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cyber security

ATO deadline reminder for contractor reporting

Taxable payments annual report (TPAR) lodgements due 28 August 2023

The ATO is reminding businesses required to lodge a Taxable payments annual report (TPAR) to do so by 28 August 2023.

This deadline is crucial for businesses falling under the TPRS regime to fulfil their reporting obligations.

Entities operating within the construction, cleaning, courier, road freight, information technology, security, as well as investigation or surveillance sectors, and that have engaged contractors in these domains, are mandated to comply with TPAR requirements.

Tony Goding, ATO Assistant Commissioner, stresses the TPRS’s pivotal role in levelling the playing field by ensuring all enterprises contribute their fair share of taxes. Not reporting payments to contractors and deliberately under-reporting income raises red flags, potentially triggering closer inspections by the ATO.

The TPRS serves as an instrument in the ATO’s arsenal, helping in the discovery of unreported income. The TPAR equips the ATO with an array of data points to uncover discrepancies, such as unreported earnings, non-submission of tax returns or activity statements, unjustified GST claims or misuse of Australian Business Numbers.

Recent ATO actions serve as a reminder of compliance expectations. Over 16,000 penalties were issued to businesses failing to lodge TPARs for prior years. With an average fine of around $1,110, these underscore the growing difficulty of evading ATO scrutiny, especially when utilising cash transactions to evade tax.

A recent example exemplifies the efficacy of the TPAR data. An investigation into a cleaning company unveiled a mismatch between declared income and actual earnings. Despite reporting $6,892 in income, the cleaning service provider was found to have received over $80,000 from multiple companies. An audit confirmed the non-submission of activity statements and concealed payments. This resulted in adjustments to the tax return and the imposition of penalties.

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