Magazines, seminars: the resources that investors can claim on tax
Making a tax claim on your investment costs depends on whether you're a long-term investor or a professional trader.
This important distinction will determine whether your share wins will be taxed as capital gains or whether they will be assessed as income.
H&R Block director of tax communications Mark Chapman says anyone dabbling in shares should talk to a tax professional to understand the tax implications of what they are doing. "It's always a conversation worth having as the potential tax differences can be significant," he says.
"Share traders can claim more deductions because they're running a business," says Chapman.
Traders can claim self-education costs for research, seminars, buying investment books, and magazines.
They can also claim home office costs, internet connections, and the kit they use for share trading.
If they buy shares using borrowed money they can also claim a deduction for the interest paid on the loans (similar to negative gearing for property).
Basically, any costs incurred in running the business of share trading is deductible, says Chapman.
"People buying shares and holding them will, instead, be subject to capital gains. They can't claim any immediate deductions," he says.
"Costs incurred need to be added to the base cost of the shares and deducted when shares are sold."
Chapman says a good indication that you might be an investor rather than a trader is if you are holding onto your portfolio.
"A share trader continually turns over their portfolio," he says.
"You can move from investor to trader but you have to look at your particular circumstances at the time."
A tax agent's fees are claimable but general financial advice is not deductible, although specific investment advice may be. A fee for preparing a financial plan is not deductible.
Typically, you can claim a tax deduction on fees paid for investment advice directly related to specific investments which produce assessable income.
If you receive advice to alter an existing investment portfolio that generates taxable income these fees may also be tax deductible.
The same goes for ongoing advice fees or retainers, where the advice is in relation to generating income associated with your investment portfolio.
You are allowed to claim for the costs of attending investment seminars, such as those related to investment properties, but you must already have the investments to make a claim, you can't be just considering them.
If you attended a seminar to educate yourself on how to invest, then the fee would not be tax deductible - but it would be deductible if you attended the seminar to improve on your current investment portfolio.
According to SMSF specialist Kate Sheringham, investments as part of an SMSF can be slightly different.
If SMSF trustees decide to seek the advice of an investment adviser as to what shares they should invest in, the cost of the advice relating to which shares to invest in are deductible only if it is part of the ongoing maintenance of the current investment strategy and not part of a new investment strategy or plan.
If the investment related advice covers other matters, or relates in part to investments that do not produce assessable income, only a proportion of the fee is deductible.
Gains and losses
There is another important reason for an investor to consider if they are share traders or long-term investors, according to HLB Mann Judd tax partner Mariana von Lucken.
If they you are a share trader the income and losses will be treated on revenue account.
If you are a long-term investor, the income would be considered on a capital account.
To ensure you are classified as a share trader, von Lucken says you should make sure you keep the following documents:
- A description of your trading strategy and why you expect it will result in a profit
- Details of your trading transactions
- Details of the amount of capital you have had invested at different times (giving an indication of the maximum and minimum amounts)
- The amount of capital you have available and the sources of your capital.
"You have to show you are carrying on a business," says von Lucken.
"The benefit of being a share trader is that you can claim a deduction on your losses against your earnings."
If you are a long-term investor you can't set losses against revenue earnings, you can only set them against other capital gains," she says.