Day trading is a form of investing where you buy and sell stocks or other securities within a day. This is in contrast to being an investor who may buy and hold stocks for longer, such as days or weeks.
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Being a day trader means constantly trading and trying to profit from market fluctuations. This type of trading requires you to understand the markets well, and your tax obligations may differ from a regular investor.
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ATO Standards for Investors and Day Traders
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If you are consistently buying and selling shares with the primary goal of making a profit, the Australian Tax Office (ATO) will likely classify you as a day trader. They will assess your trading behaviour, such as how often you buy and sell, the amount of shares you trade, and how well your trading activities are recorded to determine if you are a day trader for tax purposes.
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Business advisors offer a valuable service to both large and small businesses. They can provide ongoing help and advice to anticipate, prevent, and take advantage of potential opportunities. They become familiar with a company’s operations, spot problems before they arise, and suggest solutions to help the business grow and succeed.
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Tax Rates and Requirements
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As a sole trader, any profits you make from day trading will be subject to income tax. This means the money you make will be taxed at the rate of your income level. In comparison, if you were to register as a company, you would be subject to corporation tax, which is usually lower than income tax.
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As a sole trader, you are responsible for the entire business, from its operations to finances, and you have the final say in all aspects of the business. You are solely responsible for any debts or losses the business incurs, but you also have the full benefit of any profits. All income generated by the business is taxed as your income and must be declared as such when filing taxes. Your individual tax rate will depend on your income, including the business’ earnings.
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As a sole trader, you must submit a personal tax return that reports your income and expenses for the financial year. You are also required to keep financial records and comply with the reporting requirements of the Australian Securities and Investments Commission. You can apply for certain tax concessions for small business owners if eligible. The same rules for capital gains tax (CGT) and goods and services tax (GST) apply to sole traders as they do to companies.
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Day Trader Tax Advantages
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If you are a day trader, you can use any profits you make from selling stocks to help reduce how much taxable income you have. You can also take advantage of the same tax benefits businesses can access, such as deducting any expenses you have from carrying out your trading activities from your taxable income.
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Trading in Overseas Shares and Other Instruments
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Whether you are trading on a foreign exchange or domestically, the Australian Taxation Office (ATO) considers your permanent place of residence (in Australia) to be the main factor for taxation purposes. Thus, your overseas trading activities are subject to the same taxation rules as your trading within Australia.
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Regarding taxation, cryptocurrency is treated similarly to stocks, futures, and forex by the Australian Tax Office. A capital gains tax event is triggered whenever you get rid of a cryptocurrency.
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The Australian Tax Office has stated that when a digital wallet contains different types of cryptocurrencies, each digital token will be considered a separate asset subject to the capital gains tax. They also warned that they could identify who was behind each transaction. Using blockchain technology and setting up a digital wallet overseas will not protect buyers and sellers from being identified.
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Conclusion
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Day trading is an attractive option for many investors, but it is important to know its obligations and restrictions. Day trading can be profitable, but traders must be aware of the taxes they may owe on their earnings. It is important to keep detailed records of all transactions, as they are necessary for calculating and paying any associated taxes. Additionally, day traders should be aware of state or federal laws affecting their activities. Finally, day traders should consult a tax professional to determine the best course of action when filing taxes.
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New Wave Accounting is a team of ,tax accountants on the Gold Coast, working for various industries and creating tailored solutions for every client. We understand how individuals and businesses need reliable accounting and bookkeeping services, especially when it comes to trading and the financial markets, and so we’re here to help. Call us at (07) 55041999 to schedule an appointment today!
