Claiming share losses

Dec 05, 2011

I am retired and lost $10,000 in trading last year.  Can I claim this as a tax deduction?

Losses are sometimes unavoidable, particularly during volatile markets. Provided the non-commercial losses rules are satisfied, the Australian Taxation Office (ATO) allows traders to claim an immediate deduction for their trading losses and offset them against other taxable income, such as salary and wages, interest and dividends. 

The ATO will only allow you to offset your trading loss against assessable income from other sources if:

  • you earn less than $250,000 and satisfy one of the four non-commercial losses tests below (profits test, assessable income test, other assets test, real property test); or
  • the Commissioner of Taxation uses his discretion to allow you to claim the loss (this rarely happens).

The non-commercial losses limit the ability of taxpayers to offset business losses against other assessment income unless one or more of the following tests are met:

  • assessable income generated by the business is at least $20,000 (assessable income test);
  • the business shows a profit for at least three out of the last five years (profits test);
  • the business has property or an interest in real property with at least $500,000 on a continuing basis (real property test); or
  • the business has at least $100,000 of other assets being used on a continuing basis (other assets test).

Assuming that you satisfied those rules then you can qualify for claiming the loss in your tax return this year.  If you have earnt less than $10,000 in other income to offset these losses then you show your taxable income as zero.  The remainder of the unutilised losses are carried forward and can be offset against incomes in future years.

It is important that you have been conducting your business activities for the sole purpose of earning income from the buying and selling of investments.  Please note that If an Australian Taxation Office (ATO) audit finds that you have incorrectly claimed trading losses and you are unable to satisfactorily show that you are carrying on an investment business, then your deduction will be disallowed and penalties may apply.

If you were an investor, rather than a trader, then these losses would be classified as capital losses which could only be offset against capital gains.  They cannot be offset against normal assessable income but If you don’t have any capital gains to ffset them against in this tax year then they can be carried forward indefinitely until used in full.

Better luck with your trading this financial year!

This article first appeared in the Sept/Oct 2011 issue of YTE Magazine www.YTEmagazine.com. Copyright Your Media
Edge Pty Ltd 2011.



 

Tags: Accountant SydneyCGTDeductionsPersonal taxShares

Author: Mr Taxman

Comments

"Hey MT It's your mate Joe from the car lease questions :) Can I ask a question re trading loses and capital gains? What I would like to know is can I offset losses from trading this year against capital gains from last year that were carried forward? many thanks"

By: Joe on Feb 05, 2013 5:06AM

"Didn't word that very well. Basically I have a large tax debt and large carried forward capital losses. Can I off set the capital loss against the debt to the ato?"

By: Joe on Feb 05, 2013 5:32AM

"Unfortunately any carried forward capital losses are quarantined against future gains - you cannot reduce your taxable income directly nor offset any tax payable nor against prior year capital gains."

By: Mr Taxman on Feb 05, 2013 10:46AM

"Thanks MT Can I do a tax variation for my car without doing the three months log book first or do I have to wait until I have actual 3 month records? Is this the right forum or should it be the oter one ...sorry if in wrong place."

By: Joe on Feb 06, 2013 10:21AM

"Log book not essential prior to putting in the PAYG Variation form as essentally it is just an estimate. Just a word of warning to be more cuatious than aggressive as you don't want a tax bill at the end of the year."

By: Mr Taxman on Feb 11, 2013 10:19AM

"For the purpose of assessable income test, what would constitute assessable income - the gross sale value of all share transactions or just the aggregate value of profit/loss from the trades. Example if buying on margin and have 3000 shares at $ 50 each would 150,000 be assessable income for this transaction and then the cost of the shares be the deduction, or is the nett treated as assessable income only. Hope I make sense."

By: Emiliya on Apr 14, 2013 7:33AM

"The gross value not the profit figures."

By: Mr Taxman on Apr 17, 2013 7:43AM

"I have lost money from my Super fund because of virus is this able to be claimed on Income tax return as losses from investments. Regards Jim"

By: James Edens on Jun 10, 2020 9:02PM

"If the losses have been realised in your super fund then the super fund - not yourself personally unfortunately James - can offset those capital losses against any capital gains."

By: Mr Taxman on Jun 11, 2020 2:58AM

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