I wrote recently about how the tax office decide whether someone is an investor or a trader, and promised to write about the advantages of each. If we look at this from a tax perspective, there are many benefits to being a trader:

  • The first is something called the entrepreneurs tax offset. This is claimable if you have a gross revenue of under $50,000 and record a profit. If you have a gross revenue of over $50,000 then your offset decreases until you have revenue of over $75,000 when it is no longer claimable. This basically means you can offset 25% of the tax payable on the profit that your business made.
  • The second is the 50% tax break for small businesses purchasing assets (over $1000) before the 01/01/2010. For example if you as a trader were to buy a laptop worth $1500 for trading purposes, then you could potentially claim $750 of it immediately, as well as the depreciation for the first year. This means you could claim $975 of the laptop in the first year alone!
  • In regards to depreciation of assets, you can claim more outright as a trader than you can as an investor. As an investor any assets purchased valued between $300 and $1000 must go into what is called the low value pool. This means that 18.75% of it is claimable in the first year and 37.5% is claimable in subsequent years. With a business assets up to $1000 in value can be claimed outright as a low cost asset!
  • With capital gain events, if you make a loss then you have to wait until you have another CGT event to offset those losses. If you are running a business with a gross revenue of over $20,000 (which you would probably want to be able to justify running your trading as a business) then you can offset your losses against other income to reduce tax. Of course you don’t want to be making losses but this is a handy advantage to have up your sleeve if the market tanks on you.
  • Lastly, sometimes it is easier to claim more as a share trader than as a share investor. An investor can hardly justify claiming large portions of internet costs, computer and costs, magazines etc if they are only making 2 purchases a year!

As an investor, however, there are still some advantages to consider:

  • Any shares held for over twelve months can become eligible for a 50% discount, meaning that you only need to pay tax on half of the gain made.
  • If you already have capital losses from previous events, these can only be used up against other capital gains. So this would be a time where being an investor could have a tax advantage over being a trader.
  • Record-keeping is often a lot easier, and you don’t need to account for stock-on-hand each year until it’s actually sold.

In many cases, as you can see, there is often an advantage in both sides and this is where it’s good to plan with your accountant which case you want to build.