Examples of buying and selling shares

When you buy shares for the main purpose of selling them, you need to pay tax on the amount you get from the sale.

Malia regularly used an online investment platform to buy and sell shares in Australian and New Zealand companies. She did not consider dividends and chose shares in companies that reinvested profits.  Malia was prepared to take risks and searched for companies on the platform by applying a ‘highest price change’ filter.  Malia would sell shares when she considered the price was high. 

 The type of shares, the length of time held, and the pattern of activity indicate that Malia’s main purpose for buying the shares was to sell them.  Malia did not have any evidence to show that this was not her main purpose, and she had no other explanations for the sales. 

The facts indicate that Malia bought the shares for the main purpose of selling them. 

The amount Malia got from selling the shares is taxable.  

When you buy shares for a main purpose that is not selling them, you do not need to pay tax on the amount you get from sale. You need to keep records at the time you buy the shares to show this. 

Li used an online investment platform to invest in shares. She wanted to invest in ethical companies to support those companies, but also still provide a good investment.   

She did some research before buying any shares, focusing on the companies’ ethical and sustainability policies as well as dividend history and the growth in share prices over the last few years.  Li keeps records of this research.  

At the time of purchase, Li is not certain about how long she will hold the shares for. 

2 years later, she decides to sell the shares and makes a profit.   

While 2 years is not a long-term investment, Li had several purposes for buying the shares, including that she wanted to support an ethical and sustainable company, was seeking dividends and also growth in the share price. While sale was a possibility, her main purpose at the time she bought the shares was not to sell them. Li can show this through her research and her stated purpose is consistent with the type of shares that she bought. 

The amount Li got from selling the shares is not taxable.

When you buy shares for a main purpose that is not selling them, you do not need to pay tax on the amount you get from sale. You need to keep records at the time you buy the shares to show this. 

Aarav had a large share portfolio that he was holding for a long-term investment. Some shares paid dividends that Aarav re-invested, but most investments were in high growth shares.  He wanted to build up his assets so he would have an inheritance he could pass on to his children and grandchildren, but he may also sell some investments in the future depending on his financial needs.

Aarav bought the shares with the main purpose of building up his investments that may, but would not necessarily, be sold. The possibility that shares will be sold does not mean he has a main purpose of disposal. 

Any amounts Aarav gets from selling the shares in the future are not taxable.

 Sales of your shares are not taxable if your main purpose was not to sell them at the time you buy the shares. It does not matter if you change your mind and later sell them.

Aroha bought shares in a company because she was interested in the products the company made and also thought the shares would be a good investment.  Aroha discussed this with her financial advisor, and the advisor kept notes of the investment plan.    

The following year the company’s policies changed, and Aroha did not support the direction the company was moving in. She decided to sell the shares and invest her money elsewhere.  

Aroha’s purpose at the time she bought the shares decides if the share sales are taxable.  Her investment plan recorded reasons discussed with her investment advisor for the initial purchase, and reasons for the sale of these shares support that her main purpose for buying the shares was not sale.     

Because Aroha did not buy the shares for the main purpose of selling them, the amount Aroha got from selling the shares is not taxable.  

Sales of your shares are taxable if your main purpose was to sell them at the time you buy the shares.  It does not matter if you change your mind.

In 2021, James started using an online investment platform. He was looking to earn extra money by selling shares for profit.  After a few months he changed his mind and decided to hold on to the shares for a long-term investment.  

 2 years later, James had a change of circumstances and had to sell the shares.  It’s James’ purpose at the time he bought the shares that decides if sales are taxable. 

Because James bought the shares for the main purpose of selling them, the amount he got from the sale of the shares is taxable. 

When you buy shares for the purpose of funding something, the sale of those shares will be taxable.  Selling the shares is your main purpose at the time of purchase.

Phil had money in a bank account that paid a low interest rate and was looking to save for a house deposit. He discussed his situation with his bank and was told the amount of deposit he needs for a home loan.   

 Phil was concerned that high inflation and low interest rates would mean he would be worse off once he was ready to purchase a house. Phil decided to invest his money with an online investment platform in a combination of high growth and high dividend earning shares.   

2 years later, the value of Phil’s investment was sufficient for a house deposit, and he sold all his shares. Phil’s main purpose for buying the shares was to increase the value of his house deposit.  He could achieve that only by selling the shares. 

Therefore, selling the shares is Phil’s main purpose. 

The amount Phil got from selling the shares is taxable.  

When you purchase shares for the main purpose of sale, a loss may be claimed if you sell the shares for less than you bought them.   The shares must be sold to claim a loss. 

Charlotte bought $1,000 of shares using an online investment platform.  She bought the shares hoping to make a quick profit and kept records of this purpose.   

However, the market turned, and the shares dropped in value to $800. 

Charlotte sold the shares to limit the loss.  Because she bought the shares for the main purpose of sale, the amount received of $800 is income.  However, this is offset by the deduction she gets for the cost of the shares of $1000. Charlotte also paid transaction fees totalling of $20.

Charlotte had total income of $800 and total expenses of $1020 so made a $220 loss. She can claim this loss against her other income. 

If Charlotte does not sell her shares she cannot claim a loss for the drop in value. A loss can only be claimed when the shares are sold.