ATO: Be careful when claiming losses on shares

The Australian Taxation Office recognises that the global economic downturn has decreased the value of many people’s investments over the past year, and that some taxpayers may be ‘confused’ about the difference between capital losses (share holdings) and revenue losses (share trading).

They remind taxpayers that the taxation of their investments in prior years is relevant when working out the treatment of a loss in the current year, so if there has been minimal change in the nature of their investment activity, it is likely that the same tax treatment applies in the current year.

For example, if a taxpayer has previously sold shares and claimed the 50% CGT discount, and has then realised a loss in the current year, they would be expected to claim this as a capital loss.

Taxpayers who seek to reclassify their activities may be asked to provide evidence that demonstrates a change in the nature of their activities or that they have declared their income incorrectly in the past.