Deductability of Loan for options trading

[s_t]

I've just been reading http://www.somersoft.com/forums/showthread.php?t=26532& which made me realise something....

I've just withdrawn some cash from my share margin loan account, and put it into a options brokerage account. Prior to this cash from share margin loan account has been 100% for investment (combination of more shares and property purchase expenses). I've just realised that options trading profit could be considered as captial gain rather than income, and that if it is capital gain only, then interest from margin loan mightn't be fully deductible??? Is this correct? Any comments?

 

[alexlee]

Why? I can buy a share that doesn't have any dividends on margin and the interest on THAT is all deductible.

The tax office considers capital gains, dividends and trading profits (assuming you're considered a trader) to be income.
Alex

 

[s_t]

hmmm. My shares to date have been long term buy and holds (aside from quite a few years ago.....). Being a 'trader' or not is going to the important thing with this account I think - will have to look into it some more.

 

[alexlee]

One assumes you're going to be actively trading the options, so the CG distinction doesn't matter anyway since you probably won't hold the option for more than 12 months.
Alex

 

[s_t]

One assumes you're going to be actively trading the options, so the CG distinction doesn't matter anyway since you probably won't hold the option for more than 12 months.
Alex

Thanks, but can you explain what you mean by this? Your right, I wouldn't hold an option longer than 12 months, but why does this mean the CG distinction doesn't matter? It would seem that options are treated the same as shares, so I'd have to set things out in such a way to be a 'trader'. I'm still reading ATO docs to try and work this stuff out though....

 

[alexlee]

If you don't hold the options for more than 12 months, the 50% CG discount doesn't apply. i.e. you pay tax at your marginal rate on 100% of your profits. in which case it doesn't matter whether you're a trader or not.

Normally, you don't want to be a trader because you want the 50% discount on things you do hold >12 months. Since you don't plan on holding for >12 months, it's irrelevant in your case.

But since you also have genuine buy and holds in your portfolio (which you want to keep the 50% CG discount for, it may make sense to trade the options in another entity?
Alex