The short answer
Most people who buy and sell shares in Australia are investors for tax purposes, even if they trade often and follow the market closely. Their shares are capital gains tax (CGT) assets. Gains are capital gains, the 50% CGT discount can apply to shares held for 12 months or more, and losses can only be used against capital gains.
A share trader is someone whose activity amounts to carrying on a business of trading shares. Their shares are trading stock, gains are ordinary income, there is no CGT discount, and losses are deductible against other income — but only if the business also gets past the non-commercial loss rules.
Nobody opts in. The ATO looks at what you actually do. And because the two treatments cut in opposite directions in good years and bad, the most common mistake is choosing the label that suits this year’s result: investor when you made money, trader when you lost it.
How the ATO tells them apart
The ATO’s guidance on share investing versus share trading says the question is the same as whether you are carrying on a business. It lists the factors courts have looked at:
- The nature and purpose of your activities. Wanting to make a profit is not enough on its own — an investor wants that too. The ATO looks at the facts of how you operate, or a business plan showing how you will: market analysis, research into where a profit may arise, and the basis on which you decide to hold or sell.
- Repetition, volume and regularity. Repetition is described as a key characteristic of business. The higher the volume, the more likely a business; a trading business would also be expected to buy on a regular basis through a routine method.
- Organisation in a business-like way. Study of daily and longer-term trends, analysis of company reports, seeking expert advice, and your own qualifications and skills. The ATO says plainly that failing to keep records of share transactions would make it difficult to show you were carrying on a business.
- The amount of capital. Not a crucial factor. You can run a business on small capital, and invest a large amount without being a trader.
The ATO’s own example is worth knowing because it surprises people. An accountant with a $1.5 million portfolio across 20 blue-chip companies monitors the market daily, subscribes to analyst research and sells shares on several occasions for a $50,000 gain in a year. He is not a trader: he bought for dividends, and only sold when prices rose markedly. Daily attention and a large portfolio do not make a business.
No single factor decides it, and there is no trade count or dollar threshold that makes you a trader. It is a judgement about the whole picture.
What changes when you are a trader
| Item | Share investor | Share trader |
|---|---|---|
| Profit on sale | Capital gain, subject to CGT | Ordinary income |
| Loss on sale | Capital loss: offsets capital gains or is carried forward; can’t offset other income | Deductible against income |
| Purchase price and brokerage | Counted in the gain or loss when you sell | Deductible in the year incurred |
| Dividends | Assessable income | Assessable income |
| Costs of earning dividends, such as interest | Deductible in the year incurred | Deductible in the year incurred |
Because a trader’s shares are trading stock, positions still open at 30 June also matter. Each item is valued at cost, market selling value or replacement value; an increase in the value of stock over the year is assessable income and a decrease is a deduction. You can choose a different method for each item each year, and the closing value becomes next year’s opening value. So the method you pick decides whether unrealised movements in open positions affect the year’s result.
Changing status has its own rules. Moving from investor to trader, you choose whether shares enter trading stock at their original cost or their market value; choosing market value triggers CGT event K4, a capital gain or loss you report. Any capital losses carried forward from your investor years stay capital losses — they cannot be converted into revenue losses. The ATO notes it may ask for evidence that your activities genuinely changed, and that incorrectly claimed losses can attract penalties.
Losses: where people get hurt
The attraction of trader status is almost always the losses. An investor with a salary and a bad year on the market gets no immediate tax relief: the capital loss waits for a future capital gain. A trader’s losses are deductible against income. But “deductible” and “reduces this year’s tax on your salary” are not the same thing.
For individuals, a business loss is a non-commercial loss unless conditions are met. To offset it against other income in the same year:
- You must actually be in business, and have started it.
- You must meet the income requirement: taxable income (with the business loss added back), reportable fringe benefits, reportable super contributions and total net investment losses must together be under $250,000.
- The business must pass at least one of four tests: assessable income from the activity of at least $20,000; a tax profit in 3 of the past 5 years including this one; real property of at least $500,000 used in the business; or other assets of at least $100,000 used in it.
Fail these and the loss is not lost, but it is deferred: it waits until the activity makes a profit. The Commissioner has a discretion to allow it in limited circumstances. A new trader with a loss in the first year, no profit history and no significant business assets can easily find the loss does nothing for this year’s salary tax. How assessable income is measured for a trading business, for the $20,000 test, is a question to put to your tax agent with your own figures. The ATO’s pages on these rules describe business activities generally and do not single out share trading, so confirm how they apply to yours before relying on a loss.
Claiming to be a trader in a loss year and an investor in a profit year is exactly what the ATO says it may ask you to justify. Your status follows your activity, consistently. If you change how you operate, document when and why.
The CGT discount, and the change from 1 July 2027
For investors, the CGT discount currently halves a capital gain if you are an Australian resident for tax purposes and owned the asset for at least 12 months before the CGT event. The day you bought and the day of the CGT event are both excluded when counting. Foreign and temporary residents generally cannot use the full discount. Traders never get it, because their gains are not capital gains.
That is changing. The ATO reports that, as part of the 2026–27 Budget, legislation now in force will, from 1 July 2027, replace the 50% CGT discount for individuals, trusts and partnerships with cost base indexation and a 30% minimum tax rate on capital gains. The CGT changes only apply to gains that accrue after 1 July 2027, and the ATO says they don’t apply to Tax Time 2026.
The detail of how gains straddling that date are split is beyond this guide and is something to take advice on for any large position. The practical point for now: the gap between investor and trader treatment, which today rests heavily on the 50% discount, will look different for gains accruing from 2027–28.
Worked example: the same $30,000 three ways
A salaried employee on $90,000, 2026–27 rates
At $90,000 of taxable income her income tax and 2% Medicare levy come to $19,320. Every extra dollar up to $135,000 is taxed at 30% plus 2%, so 32%.
| Scenario | Added to taxable income | Extra tax and levy |
|---|---|---|
| Investor, $30,000 gain on shares held 12+ months | $15,000 | $4,800 |
| Investor, $30,000 gain on shares held under 12 months | $30,000 | $9,600 |
| Trader, $30,000 net trading profit | $30,000 | $9,600 |
$15,000 × 32% = $4,800 $30,000 × 32% = $9,600
Now reverse it: a $30,000 loss.
- Investor: a $30,000 capital loss, carried forward against future capital gains. Tax on her salary this year is unchanged at $19,320.
- Trader who meets the income requirement and passes one of the four tests: taxable income falls to $60,000. Tax and levy at $60,000 are $9,620 (after the low income tax offset), a saving of $9,700 this year.
- Trader who fails all four tests: the loss is deferred. Tax this year is unchanged at $19,320, the same as the investor.
The spread between best and worst case in the loss year is the entire $9,700, and it turns on facts she may not have thought about when she started.
Reserving tax on trading profits
Whichever you are, realised profit on shares is not spending money until the tax on it is put aside. The method differs slightly.
- Reserve at your marginal rate, not an average. Share profits usually sit on top of a salary, so they are taxed at the top of your income, not across the brackets.
- Investors: reserve on each realised gain, net of capital losses you already have. Halve the gain first only if the shares were held for at least 12 months and the discount applies to that gain — and remember gains accruing after 1 July 2027 fall under the new rules.
- Traders: reserve on the year-to-date net trading profit, after brokerage and other costs, and top it up or release it as the running total moves. Allow for positions open at 30 June if your valuation method will bring their movement into the year.
- Don’t count on instalments to do it for you. PAYG instalment income is gross business and investment income excluding capital gains, so an investor’s gains are not part of it, and the instalment amount or rate is set from your latest return. If this year is much better than last, expect a balance to pay when you lodge.
CashDesk is built for this: it separates what you have made from what you owe on it and keeps the reserve moving through the year, for Australia among other countries. It prepares figures and does not lodge anything. For the records side, the ATO’s point about record-keeping applies whichever way you are treated — a trading journal such as RiskDesk, which imports trades from your broker’s CSV export or takes them by hand, keeps every trade in one place. A journal is evidence of what you did; it does not by itself make you a trader.
The broader habit of reserving on uneven income is covered in reserving tax on irregular income.
When it depends
Almost everything in this guide turns on facts only you and your adviser can weigh.
- Status is a judgement, not a rule. Two people with the same number of trades can be treated differently because of how they operate.
- Structure matters. This guide is about individuals. Companies cannot use the CGT discount at all, and trusts and super funds have their own rules.
- Derivatives, CFDs and crypto raise their own questions and are not covered here.
- The 2027 CGT changes are new, and the detail of how they apply to a particular holding should be confirmed with the ATO or a registered tax agent.
If you think you may be a trader, have that conversation before you lodge a return on that basis, not after the ATO asks. And if you are estimating what a year of trading might produce, the expectancy calculator shows what your closed trades actually earn per trade.