Taxable income from selling shares

Find out why it’s important to record your reasons for buying shares, when share sales are taxable and when you can claim a loss if you lose money on share sales.

When amounts you receive from sales are taxable

Amounts that you receive from selling shares are taxable when you:

bought the shares for the dominant or main purpose of selling them
have a share-dealing business
have the shares as part of a profit-making scheme.

The share sales may be income under 1 or all of these, but the amount you get from the sale is only taxed once.

Income under ordinary tax rules

The amount that is taxable is the sale price less the cost of the shares.

Shares you acquired for the purpose of disposal

An amount you receive from selling shares is income if you got the shares for the dominant or main purpose of sale.

Common reasons for buying shares include getting dividend income, long-term investment and expecting gains from the growth in a share price.

Record your reasons for buying shares

You may need to prove to us whether or not you got the shares for the purpose of selling. This means you may need to provide records from when you bought the shares including:

notes about why you bought the shares at the times, such as emails
information you relied on when you decided to buy shares, for example research you did
any investment plan or advice from financial advisors
lending records if you borrowed funds to buy the shares
any past association between you and the company
any separation between shares held to sell and shares you’re holding for other reasons such as receiving dividends.

Recording your reasons for sales can also help explain if sales are consistent with your stated purpose for buying the shares.

Supporting evidence

What you state the main purpose is must then be supported by:

the nature of the share, for example, if the company is expected to pay dividends
the length of time you hold the shares
circumstances of the purchase, use and sale of shares
the number of similar transactions.

You do not have to be in business or intend to make a profit. One-off sales are still taxable if you bought the shares mainly to sell.

Share-dealing as a business

If you buy and sell shares on a large scale, investing significant time and money, you may be in the business of share-dealing.

Signs you may be in business

Some or all of the following signs may mean you are in the business of share-dealing, you:

have a high scale of regular activity (buying and selling)
intend to profit from share sales
regularly or continuously monitor the share portfolio
have a system of buying and selling shares
have frequent share sales which are part of your normal operations to make profits
invested large amounts
spend a significant amount of time dealing in shares.

When you have a profit-making scheme

Amounts you earn from carrying on or carrying out a profit-making scheme that deals in shares are income.

A scheme is a course of action, a series of steps, or an enterprise directed to a result. The words suggest activities that are co-ordinated by plan or purpose. The plan or purpose must be clear and have some agreement of ideas but does not need to be precise - a general plan is all that is needed.

Also, any intent to make a profit from the share dealing scheme must be the dominant or main intent.

Any profits are taxable only from the time you start the scheme.

Claiming expenses

If you have shares you got for the purpose of sale or as part of a share-dealing business, you can deduct expenses in getting, holding and selling the shares.

You can claim the cost of the shares (including transaction fees) in the income year you sold the shares in. Generally, you can also claim any advisory fees and any interest on borrowed funds as an expense.

If you did not buy shares for sale or as part of a business or share-trading activity, but you do reasonably expect to get dividends, you can claim interest on borrowed funds and potentially some financial planning fees.

You will need to be able to provide evidence of the amount of interest claimed.

Financial Planning Fees

If you do not buy shares for sale or as part of a business or share-trading activity, and you do not reasonably expect dividends, you cannot deduct expenses.

Losses when you sell shares

If you did not buy shares for sale or as part of a business or share-trading activity, but rather to get dividends or as a long-term investment, you cannot claim the loss.

If you have shares which are taxable on sale under any of the general tax rules but are sold for less than what they cost, you can claim that loss in your tax return – IR3.

The amount of the loss is the sale price less deductible expenses such as the cost of the shares.

The loss must have been realised (you must have sold the shares). If the shares have gone down in value but you still own them, you cannot claim the loss.

If you have claimed a loss for share sales, we may ask you for information showing that share sales are taxable.

Tax advice

You may know if an amount you receive from selling shares is income under 1 of the general rules. If you're unsure we recommend you speak to a tax professional.