----- Original Message -----
Sent: 7 April 2000 8:01 PM
Subject: Re: [sharechat] Capital
Gains
Hi Mark
Just a question on Capital Gains and taxation. To my knowledge if one is
a "trader" capital gains (or losses) should be declared in one's IR (whatever)
as income. The anomaly comes in the definition of a "trader" i..e. how many
transactions in how long a time period - not currently defined. The
alternative title is "investor" which seems to be a person in for the long
run. Wonder if the new 'powers that be' will be having a look at this
?
Thanks to the imprecision of tax law, Brian,
I can't actually give you a black and white answer. There are actually two
limbs under which 'capital gains' can be taxable in your
hands:
1) If you purchase any item, including a
share, car, chair, anything!!, with the intention to onsell it for a profit,
then the gain on selling it will be taxable. Of course, the IRD have to be
able to prove that you had the 'intention' to sell the item when you purchased
it.
2) As you allude to above, if you are in the
business of trading in shares, then all such 'capital gains' are taxable, as
shares simply become your trading stock. There is no golden rule regardng the
the number of trades that will make you a 'trader', it will come down to the
facts of the case in every instance. Note that you can hold both trading
shares, on which capital gains will be taxed, as well as shares you have
purchased for income and long term growth, on which capital gains will not be
taxed. If this is the case, then the sensible thing for you to do is keep some
type of minute book in which you keep very clear notes as to your intentions
for each share that you purchase, and if you are running both a trading as
well as a long term portofolio, then keep your accounting systems for each
separate.
If you are a trader, then you will also need
to familiarise yourself with the taxation rules governing the valuation of
shares (which are called 'excepted financial arrangements' under the Income
Tax legislation). Note the new rules are a bit nasty, in that shares are the
only trading stock item that must be valued at historical cost, you cannot use
market value. This means that the only way to take a tax loss at the end of
the tax year, is to sell those shares on which you are making losses in order
to crystallise the loss.
As to what the 'new power that be' will be
looking at - well Brian, this lot will be looking to tax the very air that you
breathe.
Regards Mark
Hubbard
See IRG research reports
