I am an accountant and familiar with the ATO's instructions on how to classify your activity on the stock market (find link below) but have recently become concerned because classifying entities has become extremely difficult.
A professional opinion seems to count for very little these days. There are several instances to date where I or a colleague classify an entity one way and the ATO classify them as the other; more often than not, the ATO's classification results in a higher Tax Payable for the entity. Worryingly, the ATO seems to disregard issues such as trading frequency, the length of time a parcel was held, etc... The primary determinant of their assessments seems to hinge upon the profit made, which is silly (very few people I know enter the stock market with the intention of eroding their financial position...).
The ATO also seems to lack an awareness of how complex the share market can be totally ignoring explanations provided by clients or brokers. For example I had a client (classed as an Investor) who had held a large parcel of a small cap resource stock for about 5 years with no activity. The stock experienced some substantial gains and the client was advised by his broker to offload the majority of his stock and realise some profit. The client placed a single order with the broker who took more than a week to sell the parcel in small lots due to poor depth for the stock. The ATO classified each broker transaction as a discrete and unrelated trading event and proceeded to reclassify the taxpayer as a trader...!!? Of course reaping a hefty tax bill.
I hate giving advice that I cannot back up and worry about my own activity as the tax consequences can be significant. Does anybody know of recent studies academic or otherwise that would suggest how long the average "Investor" holds a parcel of shares or how many trades the average "Trader" engages in. I am unable to get any clear rules of thumb from the ATO which makes it hard to be sure of any classification personally or professionally.
Link to ATO Guidelines : http://www.ato.gov.au/businesses/con...0&mfp=&st=&cy=