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ABC Four Corners report on the Australian Tax Office

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I'm sure we would be interested in any member's experiences with the ATO, and if the report resembles reality.
 
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My feeling from the report was that it affects a minority many of whom probably don't know better or aren't in a position to stand up for themselves. But even if it is a small minority one person going through such grief is too many...
 

moXJO

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I had threats via the tax office. Mafia like threats.
They are all powerful.
 

CanOz

Home runs feel good, but base hits pay bills!
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We had a recent experience where an ATO rep called my wife to request a payment be honoured. I immediately expected a scam and demanded (politely) credentials. Once i realised he was real i let my wife resume the conversation. He was polite and amicable the entire time, almost expected us to call it a scam. We made the payment (an error on her tax return) and moved on...
 
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Would not be nice to be subjected to that.

The emotional toll would be almost like being the victim of a very serious crime, and also ruined financially and then they turn around and admit they made an error in some cases.

I often wonder about the share trader vs share investor rules as they would relate to the genre of those that visit this forum.

The ATO have guidelines on their website, but they are open to interpretation and can be applied in the tax offices favor if questioned or taken to tribunal from the cases I have read.

In most cases, they have denied a share trader from claiming losses against other income.

I haven't seen a case where one has declared themselves a share investor, claiming CGT discount on large gains, lots of transactions/turnover of portfolio being challenged by ATO to be a share trader and the CGT discount denied.

Does anyone have any knowledge or experiences to counter the latter?
 
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I haven't seen a case where one has declared themselves a share investor, claiming CGT discount on large gains, lots of transactions/turnover of portfolio being challenged by ATO to be a share trader and the CGT discount denied.
The CGT discount requires a 12 month holding period. What sort of trader is holding a substantial portion of their portfolio over 12 months? I doubt the ATO wants to open the Pandora's Box of trading losses being used to reduce PAYG tax for share "traders" who aren't much more than gamblers.
 
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moXJO

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They mainly hit small business at different earnings thresholds.
Workers comp need investigating as well.
 
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The CGT discount requires a 12 month holding period. What sort of trader is holding a substantial portion of their portfolio over 12 months?
One that lets their profits run and cuts their losses.

I imagine there would be quite a few around that use a program to generate signals on a daily/weekly basis, a systemised/mechanical approach that have lots of little losses and a few big winners run over 12mths. Typical trend following type systems, like the Tech Trader system.

So pretty unlikely to be reclassified by ato to be share trader in your view. Thanks for input.
 
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One that lets their profits run and cuts their losses.

I imagine there would be quite a few around that use a program to generate signals on a daily/weekly basis, a systemised/mechanical approach that have lots of little losses and a few big winners run over 12mths. Typical trend following type systems, like the Tech Trader system.

So pretty unlikely to be reclassified by ato to be share trader in your view. Thanks for input.
What you describe fits the definition of carrying on a business. There is certainly no intention to generate a passive income from the asset, other than it being incidental to the trading of shares. Depending on the scale, repetition etc etc of what you're doing you may or may not be a trader.

Also, the asset has to be classified as revenue or capital in the tax return. If you're a share trader, it's on revenue. You can't just reclassify it after 12 months, to take advantage of the CGT discount (although you're welcome to try). It would be like K-Mart having some old Bonds undies sitting in a warehouse and after not selling them for 12 months they reclassify the sale of them as a capital gain rather than it being revenue.
 
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What you describe fits the definition of carrying on a business. There is certainly no intention to generate a passive income from the asset, other than it being incidental to the trading of shares. Depending on the scale, repetition etc etc of what you're doing you may or may not be a trader.

Also, the asset has to be classified as revenue or capital in the tax return. If you're a share trader, it's on revenue. You can't just reclassify it after 12 months, to take advantage of the CGT discount (although you're welcome to try). It would be like K-Mart having some old Bonds undies sitting in a warehouse and after not selling them for 12 months they reclassify the sale of them as a capital gain rather than it being revenue.
I'm coming from the angle that one follows a system (lets say something like Tech Trader). You could say that you are investing in good quality businesses with the intention to make money from dividends and capital growth. If the share price deteriorates you sell to protect capital. Predefined rules are coded into software to generate the buy/sell signals. You declare/treat yourself an investor in your tax returns, ie on capital account. You do this for a number of years.

Tax office does an audit, measures your activities up against their share trader guidelines and determine you to be a share trader, deny your cgt discounts and apply penalties for previous years.

Its possible it could happen, although I haven't heard of it going this way and think it would be a low probability of it happening.

I wonder if there is a certain number of CGT events relating to shares that may trigger an audit, ie if there were 20 or 50 buys/sells per year, etc
 
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I'm coming from the angle that one follows a system (lets say something like Tech Trader). You could say that you are investing in good quality businesses with the intention to make money from dividends and capital growth.If the share price deteriorates you sell to protect capital. Predefined rules are coded into software to generate the buy/sell signals. You declare/treat yourself an investor in your tax returns, ie on capital account. You do this for a number of years.
I don't see how in this scenario you can be described as anything but a share trader. The dividends are incidental to holding the shares for capital gain. On what basis can you argue that you're "investing in good quality businesses"?
 
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I tend to agree with you but I think the default position is that one is treated on capital account for share related transactions.

And I speculate that a lot on here would treat themselves as such even if they were following a system. I wonder how @tech/a declared his activities when he was doing Tech Trader live with his own funds? On Capital or Revenue account?

Like I said I haven't seen a case where the ATO has challenged that a self declared investor be treated as a share trader. They would have to prove that you had a written business plan, that your intention was to buy and sell shares to make profit, that your activities were repetitive, regular and routine. Records kept in a business like manner. They say that the greater the volume of transactions the more likely it is to be a share trading business. Plus more. All very subjective and quite a large burden of proof to substantiate the carrying on of a business to be classified as a share trader.

Ergo the default position is to be treated on capital account as an investor.

I've only seen cases where a self declared share trader be denied to be carrying on a share trading business and reclassified to be treated on capital account, thus not allowing losses to be offset against other income.

I'm curious if anybody has experience or heard of the ATO challenging share related activities self declared on capital account be retreated as that of a share trader and treated on revenue account. Ie where there were 50 or 100 CGT events declared in tax return for sale of shares and the ATO sent a please explain letter along the lines of we think you are carrying on a share trading business as such we are going to deny your CGT discounts.
 
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They would have to prove that you had a written business plan, that your intention was to buy and sell shares to make profit, that your activities were repetitive, regular and routine. Records kept in a business like manner. They say that the greater the volume of transactions the more likely it is to be a share trading business. Plus more. All very subjective and quite a large burden of proof to substantiate the carrying on of a business to be classified as a share trader.
The ATO doesn't have to prove you're a trader, they just send you a letter saying they have reviewed your tax returns and blah blah you owe them $x. You then have to prove you're not, and you don't. You can take them to court but they will ring you out and go through every part of your finances, or you can proactively seek a private ruling.

None of the things in your list are particularly hard to prove.

FWIW, my accountant tells me that if I ever want to be a trader, I need to use a separate broking account.

Like I said I haven't seen a case where the ATO has challenged that a self declared investor be treated as a share trader.
Right on ASF...

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.
https://www.aussiestockforums.com/threads/tax-issue-investor-vs-trader.22683/
 
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Thanks for the link.

Ok fair enough it is not a dividend paying stock, and might be speculative at best but to say it is consistent with carrying on a sharetrading business as measured against their guidelines is a massive stretch if you ask me.

Almost scary to the point they could reclassify any CGT events relating to share sales as a sharetrader if it would result in more tax being collected wouldn't you think?

Reading the circumstances of the following link https://www.ato.gov.au/law/view/document?Mode=type&TOC="05%3ACases%3AAdministrative%20Appeals%20Tribunal%3A2011%3ARe%20Taxpayer%20and%20Federal%20Commissioner%20of%20Taxation%20-%20(5%20August%202011)%3A%230101%23Judgment%20by%20Senior%20Member%20Bernard%20J%20McCabe%26c%3B"&DOCID="JUD%2F2011ATC1-037%2F00001" may need to be cut and paste.

the tax payer declared himself as a share trader. The tax office disputed this and claimed he wasn't carrying on a sharetrading business, very bizare given the circumstances described. It went to the appeals tribunal which ruled in favour of the tax payer.

There really is very little certainty which is concerning.
 
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Thanks for the link.

Ok fair enough it is not a dividend paying stock, and might be speculative at best but to say it is consistent with carrying on a sharetrading business as measured against their guidelines is a massive stretch if you ask me.

Almost scary to the point they could reclassify any CGT events relating to share sales as a sharetrader if it would result in more tax being collected wouldn't you think?

Reading the circumstances of the following link https://www.ato.gov.au/law/view/document?Mode=type&TOC="05%3ACases%3AAdministrative%20Appeals%20Tribunal%3A2011%3ARe%20Taxpayer%20and%20Federal%20Commissioner%20of%20Taxation%20-%20(5%20August%202011)%3A%230101%23Judgment%20by%20Senior%20Member%20Bernard%20J%20McCabe%26c%3B"&DOCID="JUD%2F2011ATC1-037%2F00001" may need to be cut and paste.

the tax payer declared himself as a share trader. The tax office disputed this and claimed he wasn't carrying on a sharetrading business, very bizare given the circumstances described. It went to the appeals tribunal which ruled in favour of the tax payer.

There really is very little certainty which is concerning.
That case seems pretty line ball to me. I'm guessing the taxpayer was trying to claim large trading losses to offset his income. The ATO had a fair case to argue there based on the facts presented.
 
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Almost scary to the point they could reclassify any CGT events relating to share sales as a sharetrader if it would result in more tax being collected wouldn't you think?
I often wonder is that why the ATO leaves definitions so fuzzy, so that they can get you if it suits them.

Another undefined area is whether one can be both an investor and trader at the same time. Many claim yes, but to be on the safe side separate your trading from broking by using separate accounts for clarity. Other says no, one can only be one or the other, so if you have investments and want to trade, set up a seperate entity to trade (under a company structure for instance). This argument has been raging for years, yet there is nothing in the tax act that stipulates which is right.
 

IFocus

You are arguing with a Galah
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The thing I take away is the extreme powers the ATO has plus the presumption of guilt until proven innocent with no oversight or umpire.
 

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