YTE tax expert Danny Hamilton answers readers’ most pressing trading tax questions.

I understand that if someone sets up a company to trade, the marginal company tax rate is 30 per cent. Could you please explain the implications of withdrawing money from the company to live on after tax has been paid at the company rate? Since tax was paid at the company rate of 30 per cent, is the money taxed again in relation to one’s nominal taxation rate if it is withdrawn from the company for living expenses?

A company will pay a flat 30 per cent tax on all profits earned. After the company pays the tax, it is possible to extract the remaining cash by paying the shareholder a fully franked dividend. ‘Fully franked’ is a term that means a shareholder will not be taxed twice, as the 30 per cent tax the company has already paid will reduce the tax at an individual shareholder level.

If a shareholder’s marginal tax rate is only 15 per cent they will gain a 15 per cent benefit from a fully franked dividend, but if their rate is 45 per cent they will pay 15 per cent tax on the dividend.

Another way of extracting the money is to pay yourself a salary as an employee of the company, or pay yourself a director’s fee. This will reduce the profit within the company, as the amount will be included as income in the hands of the individual. This is effective where the marginal tax rate of the individual is 30 per cent or lower (tax free threshold and other rebates, such as low income offset, will be beneficial).

I would like to take part in spread betting with a UK account I have set up. However I have conflicting information from five different tax accountants. Some say spread betting wins are not taxable in Australia. Others say they are. As I am an Australian resident, could you tell me if profits from spread betting are taxable in Australia? I know they are not taxed in the UK.

The term ‘spread betting’ can incorporate financial spread betting (for example CFDs, FX and share indices) and other spread betting such as horse racing and sporting events.

Generally, financial spread betting is taxable if your transactions occur in the course of carrying on a business activity, or if the profit is obtained in a commercial or business-like manner with a profit-making purpose.

It has been found that speculation in the futures market can be taxable even if the activities were insufficient to constitute carrying on a business, but there is no conclusive evidence to suggest this would be the case for every taxpayer.

In the case of spread betting in relation to horse racing and sporting events, it is suggested that this type of ‘bet’ is mere gambling, and relies on luck rather than skill, so unless you are in the business of gambling I suggest there would be no tax consequences. In all cases professional advice should be sought, as every circumstance is different.

I am involved in an investment club that trades shares on the ASX. How is this club treated for tax purposes?

The application of the tax law will depend on the individual circumstances of each member within the club (it would be assumed that each member would be a resident of Australia for
tax purposes).

Generally, an investment club is regarded as a partnership for tax purposes, because it is an association of people in receipt of income from jointly held investments. This means the investment club would submit a tax return to report the partnership income and each partner (or club member) would report the share of the profits in their individual tax returns. The partnership itself is not liable for tax.

Other issues such as treatment of income, disposal of investments and changes in membership need to be addressed at a specific level with your tax advisor.

If I trade shares on a short-term basis and pick up some dividends here and there, what are the rules for claiming the franking credits?

You are referring to franking credit trading. There are measures to curb the unintended use of franking credits by people who do not effectively own the shares, or who own them briefly. If you sell the shares within 45 days (90 for preference shares) of buying them, the holding period rule will apply to deny the benefit of any franking credits. You also need to hold the shares, at risk, and the rules specify a 30 per cent minimum level of ownership risk.

However, if you fail the holding period rule, you may still be entitled to the franking credits if you satisfy the small shareholder exemption (where franking credits do not exceed $5000 in a given year).

Danny Hamilton is a Chartered Accountant and Financial Adviser who assists traders with taxation and other financial issues. Contact him on This e-mail address is being protected from spambots. You need JavaScript enabled to view it

This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.