Forum Archive Index - January 2000

[Mike Hudson <MHudson@placemakers.co.nz>]

Nick wrote
"I know the law on capital gains tax for share tradingis rather ambiguous,
how are you guys faring.? I am a short to medium trader rather than a day
trader,i usually buy with the intention of making a 20% profit thisusually
takes months and i probably only do around 10/20transactions a year tops,
will i have to pay capital gains tax?"

You would really need to talk to your tax adviser but my read as a layman is
that the two main tests of whether an individual is classed as a trader are
Intent and the frequency of trading.

If you buy a share for the purpose of selling for a capital gain, you could
be classed as a trader. The best way to avoid this is probably to write file
notes to yourself giving the reason for the sale which will be anything
other than selling out for a quick profit.

There was a landmark case on this issue, the "Rangitira" case which if my
memory serves me correctly ruled that six trades a year was the dividing
line. Whether this was a ruling specific to this taxpayer or a general one
is not clear.

Of course there is an upside to being a trader in that you can deduct any
losses from income and at the end of the day what the IRD doesn't know won't
hurt them. I hope this helps but really if you are concerned you need to
speak to an expert

Cheers
Mike Hudson
 



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