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With the substantial increase in retail investors in the stock market due to Covid-19, it is important to keep in mind the tax implications of share market transactions and the requirement to disclose all gains or losses made. The Australian Taxation Office (ATO) is automatically updated with data on your share transactions so although  you may not remember your transactions, the Tax Office will know what shares you sold. Failure to disclose your gains may lead to penalties and interest charges levied.

Shares and CGT: The Basics
• When shares are disposed of, capital gains tax (CGT) will normally arise on any profit arising on the disposal.

• Gain is calculated based on the difference between sale proceeds and original cost.

• If sale proceeds are less than cost base, a capital loss arises. Any such losses can be offset against capital gains in the same year and to the extent they are not used up, they can be carried forward indefinitely until capital gains arise to absorb them.

• Individuals are entitled to a 50% discount and complying super funds a 33 1/3% discount. In both cases the asset must have been held for 12 months or more for the discount to be available. Companies are not entitled to a discount.

• CGT only applies to the disposal of assets acquired after 19 September 1985. Assets acquired on or before that date are not subject to CGT.

Distinction between a share trader and a share investor
• A share investor is generally someone who buys shares with the intention of holding them long term to generate profit through growth in value and income through dividends. If you’re a share
investor – and most people who buy and sell shares are regarded as investors by the ATO, irrespective of how the investors see themselves – any profits or losses you make from selling your shares will be governed by the capital gains tax rules which means that profits and losses will only arise when shares are physically disposed of.

• A share trader, ie someone carrying on the business of dealing in shares, will be marked out as someone who buys and sells shares purely for short term profits and will show some or all of the following hallmarks:

•  A substantial volume of transactions
•  A clear profit making intent
•  A substantial commitment to running activities in a business-like manner (eg, a large investment of capital, a well-developed business plan, extensive research and properly maintained books and records).

Share traders are taxed on their net profit/loss from trading, ie, their shares are treated as trading stock, enabling unrealised gains or losses to become taxable.

It is advisable to seek advice from a registered tax agent if  you are not sure of  your tax status if you are investing or trading shares in the stock market.