How to Improve your Tax Position as a Share Trading Business

If you have a hobby-turned-business but are unsure about the tax implications, let’s examine Sara’s story. Are you running a side business and concerned about saving time and maximizing your tax refund? Did you know that choosing between a capital account and a share trading account can have a significant impact on your tax? Welcome to EndureGo Tax. As one of the most trusted and professional accountants and tax agents in Inner West Sydney and Ashfield, we can assist you in improving your tax position and maximizing your tax refund. Please continue reading for more information.

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To cope with the ever-rising cost of living, Sara has been working in a full-time job while actively investing her spare time and effort in share trading, which she finds very entertaining and sometimes profitable. However, she is unsure how to treat it, whether as a capital endeavor or a normal business.

tax audit ato

In this case, Sara should exercise caution regarding the profit made from share trading. If her hobby turns into a business, the income gained from share trading should be subject to tax along with her employment income. Then it becomes important to consider which side to park it on: the capital account or the income account.

What happens if Sara incurs losses in share trading?

share trading

Effective way to save capital gain tax

Even if Sara’s share trading activity exhibits business-like characteristics, if it is unlikely to ever turn a profit and lacks significant commercial purpose or character, Sara can’t offset the losses against her other income. In this case, she can defer the losses until she makes a profit from the business. However, if the loss stems from the capital account, then it can only offset future capital gains.

However, Sara may offset the business losses against her other income provided she meets the following criteria:

  1. The income requirement – where the sum of taxable income, reportable fringe benefits, reportable super contributions, and total net investment losses is less than $250,000.
  2. One of the four tests (i.e., assessable income test, profit test, real property test, and other assets test).

Let’s revisit Sara: during the year, her employment income was $65,000 and her share trading business made an income of $30,000 and a loss of $70,000. Since Sara has fulfilled the requirements mentioned above, she can offset the net loss of $40,000 against her employment income. Eventually, Sara has only $25,000 in taxable income, which saves a significant amount of taxes to be paid. However, if Sara wrongly categorized the share trading as a capital event, then the loss would be a capital loss, and it would only be able to offset against future capital gains.

At EndureGo Tax, as one of the most trusted accountants and tax agents in Ashfield and Sydney, we have a team of professionals equipped with in-depth tax knowledge and experience in dealing with the ATO in areas of personal tax, company tax, as well as tax audits. If you require assistance with general tax inquiries or taxation advice to maximize your tax refund, we can provide the best solutions. Especially if you are facing issues with the ATO, we can offer our best packages to resolve your problems.

Please give John a call on 0410-829-900 so he can help you maximize your tax position.