Whether a taxpayer is a share trader or share investor depends on the specific facts of each case. The main factors to consider include whether the taxpayer has a profit-making intention, the repetition, regularity and volume of buying and selling shares, the amount of capital invested and turnover involved, whether the taxpayer is undertaking the activities in a business-like manner, written business plan and whether engaged fulltime or part-time.

The tax treatment of a share trader is summarised as:

  • They are operating a business and the sale proceeds are assessable as ordinary income.
  • Shares acquired are regarded as trading stock and are an allowable deduction.
  • Any change in the value of stock on hand at year end (compared with opening stock on hand) is taken into account in calculating the profit or loss for the year.
  • Dividends are included as assessable income.
  • The tax treatment of a share investor is summarized as:
  • Not operating a business and dealt with under the capital gains tax rules.
  • The cost of shares acquired is not deductible and instead is included in the cost base for calculating the capital gain or loss when the shares are sold.
  • Dividends are included as assessable income.
  • Interest on a loan used to buy shares is generally deductible. (If the shares acquired pay dividends or are reasonably expected to pay dividends in the future).

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