Resident tax expert Lee Hadnum answers readers’ most pressing trading tax questions.

Q: I am a UK Citizen who has been trading options full time on the Australian share market whilst living in Australia as a permanent resident for the last two years. I have an Australian Family Trust structure under which I trade, and I pay Australian income tax as is appropriate to the income distributed from the trust. I am now going to move back to the United Kingdom, but would like to continue to trade Australian options either inside, or outside, of my trust structure. I have a couple of questions.
The first is, if I am resident in the United Kingdom, but trading Australian options, do I pay UK or Australian income tax? I will be making my own decisions regarding the options that I trade and using an online broker to execute the trades. I may use a full service broker for some combination trades that I cannot execute online.
Second, do you have any advice on whether I should trade using the trust, or directly, as an individual?

A: Addressing your first question, on the basis you're a trader for UK tax purposes then you should be taxed in the United Kingdom. As a UK resident and a treaty resident individual in the United Kingdom, you should be taxed in the United Kingdom on your worldwide income.
The UK-Australia tax treaty would provide Australia with a right to tax Australian income if there was an Australian permanent establishment or Australian dependent agent. There are specific exemptions from the latter for Australian brokers and investment managers...

Excerpted from an article originally published in the Jul/Aug 2010 issue of YourTradingEdge magazine. All rights reserved. © Copyright 2010, MarketSource International Pty Ltd.
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