Brokerage fees tax deductible?

Paladin · 14 July 2008

Hey all. I know this is one for my accountant, but he might charge me for the call and I'm currently prepping my FY08 financials for him after hours

As I understand it brokerage fees are only tax deductible for investors, as opposed to traders, as a capital loss? Is that right? Seems silly - should be an investment cost rather than a capital item.

Whiskers · 14 July 2008

This ATO page should help.

Expenses that are not deductible

Unless you are considered to be a share trader, you cannot claim a deduction for the cost of acquiring shares – for example, expenses for brokerage and stamp duty. These will form part of the cost base for capital gains tax purposes when you dispose of the shares. For more information, see the Personal investors guide to capital gains tax 2008.

http://www.ato.gov.au/individuals/content.asp?doc=/content/00135936.htm&page=13&H13

subaru69 · 14 July 2008

So what is the definition of a 'Share Trader'? Is it a numerical thing or do you have to nominate that a % of regular income comes from shares. Is there a up/downside to doing it one way or the other? :1zhelp:

Thx

milothedog · 14 July 2008

from the ATO website - brokerage is usually claimed only when capital gain/loss occurs for investors - traders have different rulings, may be worth call to your accountant
Expenses that are not deductible

Unless you are considered to be a share trader, you cannot claim a deduction for the cost of acquiring shares – for example, expenses for brokerage and stamp duty. These will form part of the cost base for capital gains tax purposes when you dispose of the shares. For more information, see the Personal investors guide to capital gains tax 2008.

http://www.ato.gov.au/individuals/content.asp?doc=/Content/00135936.htm&page=13&H13

Whiskers · 14 July 2008

Also from ATO.

Carrying on a business of share trading

A ‘business’ for tax purposes includes ‘any profession, trade, employment, vocation or calling, but does not include occupation as an employee’. This definition would include a business of share trading.

The question of whether a person is a share trader or a share holder is determined in each individual case. This is done by considering the following factors that have been used in court cases:

the nature of the activities, particularly whether they have the purpose of profit making

the repetition, volume and regularity of the activities, and the similarity to other businesses in your industry

the keeping of books of accounts and records of trading stock, business premises, licences or qualifications, a registered business name and an Australian business number

the volume of the operations, and

the amount of capital employed.

1. Nature of activity and purpose of profit making

The intention to make a profit is not, on its own, sufficient to establish that a business is being carried on.

A share trader is someone who carries out business activities for the purpose of earning income from buying and selling shares.

Shares may be held for either investment or trading purposes, and profits on sale are earned in either case. A person who invests in shares as a share holder (rather than a share trader) does so with the intention of earning income from dividends and receipts, but is not carrying on business activities.

It is necessary for you to consider not only your intention to make a profit, but also the facts of your situation. This would include details of how the activity has actually been carried out or a business plan of how the activities will be conducted.

http://www.ato.gov.au/businesses/content.asp?doc=/content/21749.htm

AlterEgo · 14 July 2008

Whiskers said:
This ATO page should help.

Quote:
Expenses that are not deductible

Unless you are considered to be a share trader, you cannot claim a deduction for the cost of acquiring shares – for example, expenses for brokerage and stamp duty. These will form part of the cost base for capital gains tax purposes when you dispose of the shares. For more information, see the Personal investors guide to capital gains tax 2008.

http://www.ato.gov.au/individuals/co...tm&page=13&H13

Note the part I highlighted. If you are an "investor" (as apposed to a "trader") you do still get compensated for the brokerage, but in this case it forms part of the cost base for CGT calculations rather than being regarded as a "deduction". It's just playing with figures really. Either way you effectively still get a reduction in the tax component of the brokerage. If you are regarded as an "investor" then your accountant will need to know what brokerage was paid on any shares that you sold during the 07-08 financial year.

AlterEgo · 14 July 2008

Paladin said:
As I understand it brokerage fees are only tax deductible for investors, as opposed to traders, as a capital loss? Is that right? Seems silly - should be an investment cost rather than a capital item.

For "investors", yes it's regarded as a capital cost. So basically your total capital gain for tax purposes is the TOTAL amount received from the sale of the shares (including brokerage costs) MINUS the TOTAL amount paid for the shares (including brokerage costs).

Paladin · 15 July 2008

Whiskers said:
Also from ATO.

In terms of being considered a trader - I also believe that whether or not you have a 'day job' is a consideration. If someone has a day job, spends only several hours a week trading etc, then from previous rulings they seem to be firmly considered an investor from the ATO's perspective. From what I read last night about past actual rulings on this issue, the burden of proof needs to be fairly high to demonstrate that you're a trader, and I doubt many people really qualify. For one, you'd need to prove that you have a well researched strategy and that you trade along those lines and keep absolutely meticulous records at relatively high volumes to demonstrate that you're not just punting. Do you need a dedicated office (home or no) for trading? Etc.

I still don't see the fundamental sense of NOT allowing brokerage on an as-accrued basis as an expense against income (like interest on an investment loan, for example, or tax advice or other services used in establishing an investment or even a trip to see your rental property), but mine is not to reason why.

It's a pity because things like low value pooling and depreciation on professional libraries etc help me out a lot when it comes to my other work. One day I might have enough money in the game to have it as a reasonable third or fourth income stream, but I'll never be a trader!

charttv · 16 July 2008

I rang the ATO several times and spoke to several different people and got several different answers.

I have been writing options for income though this has not been my main income generator for the past few months.

Some ATO reps say "yes, you are classified as a share trader and can claim it an expense," and some said "no, you will have to add brokerage to the cost base of the shares."

For written options some said that this was a capital gain and had to be treated as such and some said that it was business income.....I am confused.

Paladin · 16 July 2008

charttv said:
I rang the ATO several times and spoke to several different people and got several different answers.

I have been writing options for income though this has not been my main income generator for the past few months.

Some ATO reps say "yes, you are classified as a share trader and can claim it an expense," and some said "no, you will have to add brokerage to the cost base of the shares."

For written options some said that this was a capital gain and had to be treated as such and some said that it was business income.....I am confused.

Um. . . when you get someone who says yes, I'd ask for an oral or preferably written ruling to that effect. That way they're obliged.

Whiskers · 16 July 2008

charttv said:
I rang the ATO several times and spoke to several different people and got several different answers.

I have been writing options for income though this has not been my main income generator for the past few months.

Some ATO reps say "yes, you are classified as a share trader and can claim it an expense," and some said "no, you will have to add brokerage to the cost base of the shares."

For written options some said that this was a capital gain and had to be treated as such and some said that it was business income.....I am confused.

You may even get different opinions in greyish areas of new or unclear laws from different accountants. This was common when the GST was introduced.

I would also write to the ATO and ask for an ' Official Ruling' for your particular circumstance. I've done it a couple of times over the years. That way you have certainty and peace of mind.

jono1887 · 11 July 2009

Are late fees (like when you put the money in your trading account a day late with comsec) tax deductible for
1) Traders?
2) Investors?

Grinder · 11 July 2009

It puzzles me how the ATO is so flippant when legitament queries are raised and refuses to set up definitive guidelines on all matters concerning their classifications. Surely it is not too difficult for them to lay down specific rules to clear up the grey areas.

So_Cynical · 11 July 2009

jono1887 said:
Are late fees (like when you put the money in your trading account a day late with comsec) tax deductible for
1) Traders?
2) Investors?

I would be amazed if they were not deductible in some way.

Would also think that anyone that considers themselves a trader would have a ABN
(Australian business number) and would be claiming GST from brokerage etc.

Krusty the Klown · 11 July 2009

jono1887 said:
Are late fees (like when you put the money in your trading account a day late with comsec) tax deductible for
1) Traders?
2) Investors?

Yes they are, any reasonable expense incurred in generating assessable income is deductible.

jono1887 · 12 July 2009

Krusty the Klown said:
Yes they are, any reasonable expense incurred in generating assessable income is deductible.

thanks

rock86 · 17 July 2009

Late fees, in fact any account keeping fees that result to your investments in shares, and in turn assessable income are deductible. However as mentioned above, brokerage fees are not deductible but form part of your cost base for CGT purposes

jono1887 · 17 July 2009

rock86 said:
Late fees, in fact any account keeping fees that result to your investments in shares, and in turn assessable income are deductible. However as mentioned above, brokerage fees are not deductible but form part of your cost base for CGT purposes

So are printing, photocopying, ink and paper expenses deductible as well?

rock86 · 17 July 2009

jono1887 said:
So are printing, photocopying, ink and paper expenses deductible as well?

If you can show that they were necessary in producing your income (here, through shares) then yes they are deductible

jono1887 · 17 July 2009

rock86 said:
If you can show that they were necessary in producing your income (here, through shares) then yes they are deductible

Is 'record keeping' a good enough excuse?

Brokerage fees tax deductible?

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