People engage in for many reasons. Reasons can include a dislike of the nine ‘till five job routine, increased flexibility, time for other lifestyle activities and it’s something that can be done 24/5 allowing a trader to work around family and children.
So while you are enjoying managing your own time and engaging in the fascinating world of currency markets or foreign exchange do not forget you still have responsibilities to do your taxes. It does not matter which you are using, you alone are responsible for your taxes.
A collective moan can be heard when the realization hits, but it does not have to be a total buzzkill of being your own boss.
If you earn an income from your Forex trading you will have to pay tax. Simple as that. Ignoring this is not a good idea as the can impose some pretty severe penalties. How much you have to pay is determined by what you earn and lose within a years tax period You need to discover what the tax-free allowance is. If you come under the tax threshold and are exempt, or if you are liable for a 45% tax rate, you could save yourself a lot of money in taxes. It is not good business sense to be an ostrich when it comes to your taxes. Burying your head in the sand will not help, being prepared and organised is essential.
The Australian Tax Office (ATO) has clear definitions of trading for tax purposes. As a day trader, who only holds his assets for a short time; in contract with investment trading in say stocks, will be taxed on any gain you make from trading; bearing in mind that any losses can be claimed as tax deductible.
The ATO need to know if you are trading as a ‘hobbyist’ or conducting ‘business-like activities’
So how do they decide which activity you fall under?
Recent case law has given clarity to the ATO rulings in that when looking at you they look for:
To be clear profits from currency trading are classed as revenue and are taxable but,
If you do not fit into the ATO category for day traders; for example, if you only trade weekly or have an annual gross profit less than $20,000, or, maybe you managed to get a windfall. If any of these apply the ATO considers you as a hobbyist or in other words will tax you as with gambling. In this case, you will experience the following:
Being a Forex trader is a serious commitment and not only do you have to learn the business but consider the broader implications. The ATO has extensive literature on its site, but the person best suited to help you, especially in the beginning is a tax professional. If you want to do it yourself here are a few final tips to help you manage.
Keep detailed records of everything - this is necessary if you are doing it yourself or using the services of a professional. It's worth keeping this information for around five years. This should include:
These records can nearly always be obtained from your broker, so do ensure you select one that is licensed and registered. However, it is important to note that the brokers themselves are not responsible for any of your tax obligations.
You can also set up an ‘asset register’ to store all your relevant information. Guidelines for doing this are available on the ATO website.
Rupesh Singh is freelance writer and founder of moneyoutline.com You can follow him on Google + & Facebook.