Ask Colin

In your article in June 2001 Shares magazine, why do you say to have more than one account?

The reason for two accounts is tax driven. It is very important that you understand that traders and investors are taxed differently.

In certain circumstances, the tax man may want to tax your trades as an investor if he can, so you need to be able to prove you are a trader, if audited. This is basically because traders can deduct costs of trading and also get immediate relief for trading losses by offsetting them against other income. The guidelines for demonstrating that you are in business have been well publicised.

In other circumstances, the tax man may also want to tax your investments as a trader if he can so he does not have to allow you indexation (old rules) or half tax concession (new rules).

I am not a tax adviser, but it seems to me that one way to make sure you can demonstrate what were trades and what were investments (intention at time of making the transaction) is to have two accounts - called your trading account and your investment account. I am sure that you will need to do much more than this, but it will be a part of a strategy. Do not rely on this advice - you should seek advice on this matter from a properly licensed and competent taxation adviser, who will be able to devise a complete strategy for you.

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