Tax breaks possible in face of market volatility

If there is a silver lining to the extreme volatility of the Australian stock market, it could be that tax breaks are possible for some dealing with the ramifications of the market mayhem, according to chartered accountant firm RSM Bird Cameron.

While claiming a tax deduction on losses isn’t possible for private share investors, if an individual can demonstrate their nature as a share trader, losses from the sale of shares are deductible and can be offset against ordinary income, according to RSM director of tax services Rami Brass.

While he warned individuals to check with their tax agent before claiming to be a share trader, he said factors which identify an individual as a trader include;

• The profit making purpose of the activity
• Whether the person regularly and routinely engages in share trading
• Whether there is a business plan, and the level of record and account keeping
• Volume of operations and the amount of capital employed
• The amount of time spent on share trading activities, although this indicator does not carry a lot of weight

 “There is no hard and fast rule, however, the greater the volume, repetition and capital employed and where the person displays a high level of professionalism in carrying out share trading activities, the more likely the person is a share trader,” Mr Brass said.

He added that although share investors cannot claim a tax deduction on losses from the sale of shares, interest on borrowings to acquire shares is tax deductible, and can be offset against the person’s taxable income.