Tax on shares

T

tyler_d

Registered User
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Hiya

I've been buying stocks nearly on a daily basis. Dollar cost averaging rather than putting lump sums. I've been selling maybe 5 -10 times a month.
My accountant says I need to be careful about my activity being considered trading.

From what I can see in the US, if you are buying and selling stocks daily (could be even the same stocks) then this is more trading. Does anyone know the rules in Ireland that differentiate between investing and trading as the difference is CGT vs Income tax.

Thanks in advance,

Aaron
 
Hi,
Is this question different to the 3 or 4 times you've asked it in other threads?
 
Yes It's a different question. I've asked a similar question two weeks in the wrong group (investments: eft). I got a quick response that said 'Unless you are investing alot then revenue won't chase you." Didn't really give me the details I needed as much as I appreciated the reply.

I did ask on this topic for my brother a while ago but the answer was unless you have lots of multiple terminals in your house then you wouldn't be a trader. My question this time is more specific. I am asking are there specific rules in Ireland that differentiate between trading and investing for tax purposes (eg: buying and selling 4 or more stocks on the same day is trading..etc)
 
The problem is there isn't a black & white answer to your question.

Firstly, I'm not a tax professional. My simple understanding is that it's down to whether Revenue would consider you to be carrying out a trade. A 'trade' isn't defined in the tax legislation, but is based on a concept called "Badges of trade". A summary of that here: https://www.taxationweb.co.uk/tax-articles/business-tax/the-badges-of-trade.html (UK site, but same applies here, and is backed up by Irish case law).

So the answer really depends on the whole picture of your specific circumstances. All of the 'badges' are looked at together to determine if you are carrying out a trade. There are no simple hard & fast rules around the number / frequency of trades, or an overall amount of profit you've made. As mentioned in the other post, it's a pretty high hurdle to be carrying out a trade when it comes to instruments normally held for investment. But, it depends on the whole circumstances - if you're buying and selling within a few days or same day, and 100k each trade and don't have a fulltime employment, is very different to someone with a fulltime job buying 1k at a time, and keeping some of the shares long term, but selling others after a few months.

In Ireland, we've a Self Assessment tax system, so it's up to you to determine the correct tax treatment.
 
Thanks for the detailed answer. I do have a full time job myself (not in investing) and do keep most of my shares as investments but recently I've a had two or three penny stocks (with 2-4k in them) that have doubled/tripled in a day so I've sold them due them hitting my goal for these kind of shares. These might be considered more like trades but are exceptions in my portfolio.
 
Your posts illustrate how difficult an area this is to advise on.

The opening post and your last post are contradictory.

Reading the first one, I’d say “wow, unusually enough, that’s probably trading”.

But then in your last post, you row back.

Is it “5-10” sales per month as per your opening post or is it just “two or three” sales as per your last post?
 
tyler_d said:
Thanks for the detailed answer. I do have a full time job myself (not in investing) and do keep most of my shares as investments but recently I've a had two or three penny stocks (with 2-4k in them) that have doubled/tripled in a day so I've sold them due them hitting my goal for these kind of shares. These might be considered more like trades but are exceptions in my portfolio.
Click to expand...
My understanding is that if you are doing this consistently, ie monthly and in " large" quantities they will deem it as income. Now as Red Onion says its not black and white.
I've done something similar with Bank of Ireland years ago , a one off buy , sold a quantity to cover the "punt" and kept the rest, but I was deemed liable for the gain under the CGT .
 
In my first message I mentioned I might sell stocks 5-10 times in a month. These stocks would generally be held for a month or more.
My last message just referred to two penny stocks that I sold recently within a day or two of buying.


I do buy quite regularly. I might the dip on many shares I have, to build my position but most of these I won't sell for months, maybe years. I was under the impression that the essential part of trading is selling regularly. Flipping them really.

I can tell you that I made about €1200 from August (when I started) to Nov when I submitted my December CGT form. Very little really.

I've sold three stocks within a day during that period ( The two penny stocks mentioned and 1 stock that I sold for a little loss as I got itchy fingers)



Gordon Gekko said:
Your posts illustrate how difficult an area this is to advise on.

The opening post and your last post are contradictory.

Reading the first one, I’d say “wow, unusually enough, that’s probably trading”.

But then in your last post, you row back.

Is it “5-10” sales per month as per your opening post or is it just “two or three” sales as per your last post?
Click to expand...
 
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tyler_d said:
In my first message I mentioned I might sell stocks 5-10 times in a month. These stocks would generally be held for a month or more.
My last message just referred to two penny stocks that I sold recently within a day or two of buying.


I do buy quite regularly. I might the dip on many shares I have, to build my position but most of these I won't sell for months, maybe years. I was under the impression that the essential part of trading is selling regularly. Flipping them really.

I can tell you that I made about €1200 from August (when I started) to Nov when I submitted my December CGT form. Very little really.

I've sold three stocks within a day during that period ( The two penny stocks mentioned and 1 stock that I sold for a little loss as I got itchy fingers)
Click to expand...
I think you might slide under the radar this time but if you are going to continue I think you'd be classified as a trader, and subject to income tax, Prsi, USC on any income even the amount above.
 
Thanks Paul. Something to really think about. It's funny I literally picture a trader as someone sitting at 5 monitors buying and selling stocks within an hour of each other.

If revenue look over your records and decide you should have been paying income not CGT I assume they would fine you on top of what is owed in the difference.
 
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Hiya, I have another question to ask if thats okay? Probably best to describe with an example. In 2020 I buy long term stocks and plat to hold for a couple of years. This year a bit more swing trading and accept that the gains will be income tax for this year, 2021. The following year (2022) I've stopped the trading but sell a couple of the long term stocks from 2020. Can I switch back to CGT if there is no stocks traded that year?
 
Just note, you're in a very very technical area of tax, and you should get specialist tax advice. This forum is not a substitute for professional advice.

Key Post - Warning: Askaboutmoney is not a substitute for professional tax advice

Askaboutmoney is not a substitute for professional advice and we accept no liability for any losses incurred arising from action taken on the basis of issues raised on Askaboutmoney. Some taxes, especially Capital Gains Tax, are very complicated. Making an incorrect return can be expensive in...
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As you've seen already, there aren't any clear cut answers in this area, and it depends on the full circumstances.

My layman understanding for your latest question (which might cause more confusion):

Technically speaking, you could be both trading and investing simultaneously. So it's not necessarily 'switching' between tax treatments based on what you do in a particular year, but you'd have to establish 2 portfolios up front; your 'trading' portfolio subject to income tax, and your 'investment' portfolio, subject to CGT. Your records would need to need to be able to stand up to scrutiny, that you could show it was always your intention to flip / hold, and you're not picking the most favourable tax treatment after the event. For example, use a different broker for your 'hold' investments.
 
Thanks for this. Appreciate it. Actually for the future maybe I'll set up an account under my wifes name for trades. We are jointly assessed anyway so It could just be the clearest way to separate them.
 
Could I be annoying and ask one more question about the bed and breakfast rule? If I see a stock within 30 days for a loss I can't claim that loss back can I? My brother told me you can only claim it back if you buy the stock back and make a gain within the same period.
 
Search the forum for bed & breakfast rule. There are some good explanations of it in specific scenarios.
 
I did search the rule and still unclear about one thing. I was still confused by it. I initially though If I sold apple with 30 days and didn't buy it back then I could claim the loss. My belief was that if I bought back apple within the 30 days then thats when I couldn't claim it back. My brother told me I was wrong and if I sold within 30 days I simply couldn't claim back the loss.
 
Have a look here. Particularly the link to Alan Moore's piece.

Summary: don't ask your brother for tax advice.

CGT on sale of shares - Bed and Breakfast rules

This comes up a few times and I could not find an up to date clarification of it. From the [broken link removed] Here is the relevant section Disposal of shares within four weeks of acquisition The FIFO (First In First Out) rules are modified in any case where shares of...
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