Tax advice

[Harvey Specter]

It all hinges on the "Purpose" of acquisition which is a subjective question not one of fact. Hence you cannot be "technically wrong".

There was a great property case recently where a family built and moved houses about 9 times in 6 years. Every house they built they 'intended to live in for life' but each one they had a fantastic reason to leave (school to far away, to far from parents, to close to parents, creapy neighbors, allergic to carpet, being about to only turn left to get to school (no joke), etc). Judge called bullsh!t and overruled their stated intent and rule their real intent was to profit from selling.

Even funnier was the fact they lost money on most of the transactions, with only the last two (double garages seemed to be the key) pushing them into a tax paying position.

[Trader101]

Interesting discussion.... my only advise is keep a written record of the reason for buying and sell for each share purchase undertaken.
For investing perhaps hold the share in your individual name and if trading perhaps use another entity. (ie Company) If you wish to trade and invest in your own name at the same time then have separate bank accounts for each and a different broker (ie use ASB for trading and Direct Broking for investing). The most important issue is to be able to support the activities that you are undertaking: trading or investing or both...

[Harvey Specter]

(ie use ASB for trading and Direct Broking for investing). ...

Other way around. DB is slightly cheaper which will be a small help with your trading profits

[Aaron]

This is an argument that will continue until we have a comprehensive capital gains tax (no exclusions even for your own home).
Prior to 1987 everyone was investing long term in the sharemarket, post Oct 1987 a lot of investors actually realised they were traders and their losses were deductible. There were some tax cases but I don't remember their names. Prior to the GFC people were buying coastal sections to build a holiday home (or two) post GFC they were speculating on land. Bond investors became bond traders after the finance company debacle although the rules were pretty specific I do recall hearing about an old dog on this site slipping some debenture losses through his income tax return.
Time to stop the bull**** and putting normally honest NZ citizens in a situation were they feel compelled to lie for personal gain. After the next big slump in asset values the govt of the day should bring in a capital gains tax.

[couta1]

This is an argument that will continue until we have a comprehensive capital gains tax (no exclusions even for your own home).
Prior to 1987 everyone was investing long term in the sharemarket, post Oct 1987 a lot of investors actually realised they were traders and their losses were deductible. There were some tax cases but I don't remember their names. Prior to the GFC people were buying coastal sections to build a holiday home (or two) post GFC they were speculating on land. Bond investors became bond traders after the finance company debacle although the rules were pretty specific I do recall hearing about an old dog on this site slipping some debenture losses through his income tax return.
Time to stop the bull**** and putting normally honest NZ citizens in a situation were they feel compelled to lie for personal gain. After the next big slump in asset values the govt of the day should bring in a capital gains tax.

Agreed Aaron this is the only clear solution in principle(True family home excluded) where everyone knows where they stand as long as the CGT is set at a lower rate than the top tax rate like15% for example otherwise non compliance will still be an issue,in some countries if you hold the investment for longer than a year you pay a reduced rate of tax on profits as opposed to short term holders,an idea I like

[Jay]

On a similar note and maybe a nob question, just can't think at the moment , how do you normally treat the following scenario (Treated as a trader (individual) and filing tax returns declaring profits and losses)

You buy shares in XYZ in several tranches - e.g 1000 @ $5.00, another $500 @ 4.00 and another 500 @ 4.50

You then decide to sell say 750 and get $4.45 for them. The rest you do not sell until the following financial year

What do you declare as your cost of the shares/ on your tax return; do you: a) Base on the average price overall
b) Treat each transaction separately
c) as above usng FIFO basis
d) doesn't make any difference
e) something else - who cares all works out the same in the end??
I have never done this so far in my Trading history - Only ever sold all at once and therefore used the total cost as a basis.

[Harvey Specter]

Technically you should be able to pick which parcel you are selling. However, I would pick a method and stick to it. I would probably use LIFO as it should give you a better result unless you are averaging down.

[Aaron]

You buy shares in XYZ in several tranches - e.g 1000 @ $5.00, another $500 @ 4.00 and another 500 @ 4.50

You then decide to sell say 750 and get $4.45 for them. The rest you do not sell until the following financial year

What do you declare as your cost of the shares/ on your tax return; do you: a) Base on the average price overall
b) Treat each transaction separately
c) as above usng FIFO basis
d) doesn't make any difference
e) something else - who cares all works out the same in the end??
I have never done this so far in my Trading history - Only ever sold all at once and therefore used the total cost as a basis.

I will have a go at this one but don't take my word for it.

I thought you had to use FIFO or a Weighted Average Cost to value shares considered trading stock.

Sales 3,337.50 (750*$4.45)
Less Purchases 9,250.00 ((1000*5.00)+(500*4.00)+(500*4.50))
Plus Closing Stock FIFO 5,500.00(1,250*5)+(500*4)+(500*4.50)
Loss 412.50

Or Weighted Average 5,775.00 (4.62*1,250)
Loss 137.50

Correct me if I am wrong on anything but the result is significantly different.
I understand that you need to be consistent once a valuation option is selected as changes in valuation methods need to be justified by sound commercial reasons. Advancing or deferring income tax liability is apparently not a sound commercial reason.

[Jay]

Sorry I forgot to mention that I complete the tax return on a cash basis, therefore only have to worry about what I have sold, not what is remaining.

But would have to agree with both you Aaron and HS be consistent, just not sure what that is yet.

[Aaron]

Sorry I forgot to mention that I complete the tax return on a cash basis, therefore only have to worry about what I have sold, not what is remaining.

But would have to agree with both you Aaron and HS be consistent, just not sure what that is yet.

Unless you are a barrister or doctor, Jay I think you have to account for business income on an accrual basis which would include valuing closing stock. The cash basis is applicable to salary and wage earners and dividends can be returned when received rather than the ex date but trading would be a business activity which requires accrual accounting.
Don't take my word for it though, it might pay to get some professional advice if the amounts you are trading are significant.