Monday, May 26, 2008

Trading, Tax and Superannuation

Gradually, I'm getting up to speed on Australian taxation, retirement etc. A combination of reading the Australian Financial Review (horrible website only read the paper version) and Sydney Morning Herald (great website, The Australian's website sucks too but not as bad as the AFR) and then going and checking out the ATO website (not such a great website).

So if you are a trader you can record your profit and loss as "business income". If you are a derivatives trader (options, futures, CFDs (but not warrants)) then your income is automatically business income. For share traders it is a question of how business-like you are. But then it is going to be difficult I think to claim an long-term CGT discounts. So I don't want to be thought of as a "share trader" but instead investor in shares and trader in derivatives. Then you can deduct all expenses as they occur against your income. Any items that cost above $1000 need to be depreciated over time - e.g. a laptop. You can also claim rent, electricity etc. in proportion to floor area if you maintain a home office (I do). Investors need to apportion these types of expenses when they sell shares unless they can show that they need to do this to earn dividends in which case they can deduct them in the year they occur. Anyway, I plan to claim all these type of expenses against derivatives profit and loss and claim margin interest against dividends (make sure some of the stocks in each of your margin accounts pay dividends P.S. Remember to claim the tax withheld on foreign dividends).

It seems a trader can get an "Australian Business Number" and register for the GST. The advantage of this is that you can then claim credits for GST paid on inputs even if you are not charging GST on your sales (because they are "financial supplies"). I used to run an Australian non-profit and we signed up for the GST for just this reason. If you are in the 30% tax bracket, for example, you'll get back 100% of the GST paid, rather than the 30% you get back by claiming a deduction against income tax. The downside is you must now submit quarterly business activity and GST statements. I'm thinking, that for me at the moment it is hardly worth it - maybe a $100 or so gain if I bought a new computer say. The amount of GST on internet access or my business share of the electricity we use makes this hassle not seem worth it. But maybe an ABN is worthwhile for credit purposes etc. If you fill in a form and say you are self-employed they ask for your ABN....

To contribute to superannuation, at least 10% of your income must come from employment or business. I'll have a business loss this year so I can't contribute. I don't want to contribute much at this stage anyway but if your income is below $28,980 the government will contribute $1500 for the first $1000 you contribute to superannuation (with after tax money). This seems well worth it. From $28,980 to $58,980 the co-contribution gradually phases out. Hopefully, this will be relevant to me for the 2008-9 tax year and not so relevant in future years as I earn more :)

Once I do my 2007-8 tax return I'll understand all this a lot better I hope.

2 comments: said...

I found it worthwhile to read through the relevant parts of the current CCH tax guide. It gives enough detail to be useful, but is only one (thick) volume.

For my annual returns I always scribble on the paper version of the "tax pack" (available free from newsagents from 1 July). It's also a good place to file all the miscellaneous paper receipts etc. that are for that FY. I do the actual filing electronically using the free eTax app available from the ATO.

mOOm said...

I always used to submit the paper forms from the Taxpack. In the US also I always submitted paper forms (as it cost money to submit electronically and the one time I looked at the application it was horrendous). I'll take a look at the electronic filing thing here this time and see what it's like to use. If it's just a question of filling in the numbers in the tax form that will be fine. I create a spreadsheet based on the tax forms which I then link all of my data into, so I hate applications that start off by asking inane questions when I've already completed the tax form.