Day Trading & CGT

Hey guys, stumbled on this thread couple of days ago looking for answers on wash sale rule and I'm happy to say this is one of the best sources of info on Irish taxes I've seen to date! Props!

Particular shoutout and thanks to @inisfree0504 for, first of educating me that we can actually read the full tax act legislation online and then more specifically pointing out the relevant part on wash sale. Also to @Crimson_Ghost for likewise confirm and pointing out the discrepancy between legislation and revenue website.

What I will add is another wrinkle I don't recall anyone mentioning here and that's the actual revenue manual on the 4 week rule (wash sale): https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-04-03.pdf

If yous read that carefully, you will see that, while worded slightly differently, the actual revenue manual agrees with the tax act legislation in that a wash sale rule situation only arrises if the shares are reacquired.

This means that only the example on the revenue website is incorrect and inconsistent with everything else!

To sum it up this is how wash sale works, just like in any other country:

e.g. 1: no reacquisition.

1. Buy 5 shares of stock A
2. Sell 5 shares stock A in less than 4 weeks for a loss. That loss can be used against any other future gain.

e.g. 2: reacquisition.

1. Buy 5 shares of stock A
2. Sell 5 shares stock A in less than 4 weeks for a loss.
3. Buy back (reacquire) 5 shares of stock A within 4 weeks of the disposal. That loss cannot be used against any other gain, except the gain on the reacquired shares.

e.g. 3: partial reacquisition.

1. Buy 5 shares of stock A
2. Sell 5 shares stock A in less than 4 weeks for a loss.
3. Buy back (reacquire) only 3 shares of stock A within 4 weeks of the disposal. That loss on 3 shares cannot be used against any other gain, except the gain on the 3 reacquired shares. The loss on the other 2 shares which were not reacquired can be used against any other gain, just like e.g. 1

So to put it in lay mans terms that anyone reading this thread in the future could understand - your losses never "disappear", wash sale or not. They either get used up by the reacquired shares or they get used up by other gains if no shares were reacquired. This is how every other country does it and this is how Ireland does it, in its legislation, in its revenue manual.

So the example on the revenue website, which to quote again https://www.revenue.ie/en/gains-gifts-and-inheritance/transfering-an-asset/selling-or-disposing-of-shares.aspx

is incorrect, Jane can set her loss against any other gain she may make. Why? Because neither legislation, nor actual revenue manual prohibits it! So please spread the word and put pressure on revenue to fix the egregiously misleading example on their website. Because it only benefits revenue. There's no issue for revenue if you don't claim losses and pay more tax...

Meanwhile I'm especially disappointed to learn of the quality of accountants that we seem to have in Ireland. Here's an article which incorrectly states wash sale rule and that in example 2 the loss is "gone forever" and can't be used against other gain, essentially parroting the incorrect example on revenue website https://irishfinancial.ie/the-wash-sale-4-week-rule-ireland-everything-you-need-to-know/

It was written by an accountant! https://irishfinancial.ie/about/

He also has a youtube channel where he's spreading the same miss-information on wash sale rule https://www.youtube.com/watch?v=xj_5GRxeX-k&ab_channel=WalterDunphy

The sad part is that he's presenting himself as an accountant who's suppose to understand investments - yet he makes this massive error.

Unfortunately, I've seen a few of his videos and he makes errors often...

Now I do appreciate his efforts to bring general financial education to the Irish masses, something sorely needed, but at the same time I would not trust him to do my taxes haha.

I'm actually not saying he's exception, oh no, he's the norm. The general point i'm making, is that this isn't a unique incidence, I've heard people talk to different accountants about some issue and get different answers and I've heard people talk to different revenue personal and get different answers on some issue. All the accountants I've talked to, none of them even know about the deemed disposal of ETFs rule that Ireland has...

So the sad truth, when it comes to investments: You cannot trust accountants. You cannot trust revenue personnel. The only person you can trust is yourself and your own reading of Tax Act legislation. I'd say revenue manuals are ok too, but if anything seems suspicious, suggest to go level deeper (Tax Act legislation) rather than higher (revenue website), because as we learned, only source of truth is the legislation.

Thanks for reading.

To think another way as well. Once you're a trader, you're essentially running a business. Just like a "sole trader" or you could even open limited liability company. In a "business" you have different tax regimes as you may know. When you're a sole trader, you pay Income Tax on your trading profits. With LLC you pay corporation tax, which is lower than personal income tax (stock day traders often open LLC for that reason).

So when you open an income tax registration with the business of "stock market investing" it's literally a business, so you make income tax returns on trading profits and trading loses, what you trade within that business - doesn't matter (by my understanding). Could be currency, shares, options, ETF etc.

"You would be surprised by how little some accountants know about tax. Some tax advisors are accountants and vice versa, they're two separate qualifications here in Ireland."

i still don't get then, how are accountants able to do your tax returns (form 11) for you if they don't understand the taxes? Isn't that a bit like trying to do a math problem without knowing how multiplication works? XD

"I would have thought that each transaction would be assessed individually from Revenue's POV, but you're saying that you were advised to the contrary?"

yeah. I don't think she was tax advisor, just an accountant. so not 100% sold on this either. but it does give something to think about and sounds plausible.

"As in, if you were trading Apple shares regularly, you may be subject to income tax rather than CGT - however, you wouldn't really be designated as a "trader" per se."

If you're trading Apple shares regularly, that is viewed as income and thus you need to pay Income Tax on that. Many sources I've seen seem to agree on this.

General "trading" from revenue POV

Now let's step back a bit and looked at trading (not "stock trading", just a "trade", i.e. side hustle, secondary income etc.), how do you pay income tax on your trade / secondary income? This is a broad question general question. Let's say you do some part time freelance on Upwork or something, or have a side hustle. That's all subject to Income Tax. So how do you pay it?

The answer is, if you make less than 5k per year, or your turnover is less than 30k a year, you can file that as mere extra income on Form 12. You don't need to specify source of that, so it's kinda loose and ambiguous - grand. However if you're over those (small) limits (i.e. make more than 5k or turnover more than 30k), then things start to get a lot tighter and more defined. You are now a "chargeable person" and have to get an Income Tax registration and report your profits as trade income on Form 11 (i.e. Section B INCOME FROM TRADES, PROFESSIONS OR VOCATIONS).

You can have as many of these side hustles as you want and you report them as individual trades under Section B, starting with most prominent trade first.

Now, if say you're doing freelance on Upwork, then all activity related to that is a trade and subject to Income Tax rules. You report profits as trade income and pay IT on that. You can reduce tax by expenses like work equipment, laptops, perhaps courses to up-skill for your trade, etc. You have an income tax registration open for this and you report on Section B on Form 11.

That's my understanding of how any "trade" works.

Back to Stock market

Now let's look at "stock market dealing". Using the word "dealing" to distinguish from "trading" - they mean the same of course, but trying to use a different word from "trade"/"trading" to distinguish from the general definition of a "trade" (from revenue POV) made in section just above.

Normally everyone is assumed to be "investor" when it comes to stock market and is subject to CGT rules.

But if you're deriving an income from the stock market via dealing, that is treated as a "trade" and thus subject to Income Tax rules. To be extra clear, the income is from "dealing/trading", i.e. buying and selling securities (stocks / options etc) and not dividends. Dividends are income too, yes, but they have an entirely separate section on Form 11, so you can an "investor" and still derive income from your shares via dividends and still remain an "investor" from revenue POV. Dividends (especially foreign, like USA stock) also have special treatment due to double taxation agreements between Ireland and foreign nations. So yes, dividends is income, but entirely separate kind to a "trade" income. (SIDE NOTE FOR ANY INVESTORS READING: you still have to open income tax registration in order to file Form 11 if your dividends exceed 5k a year! But you still file them in the dividend section of form 11, not as "trade" income).

Now I asked revenue in the past how they view investing v day trading and also asked how that affects the rest of the holdings.

"In relation to profit made from day trading, this is treated as a trade and should be returned as a trade income on your Income Tax return."

So they confirmed that there definitely is a notion of investing vs trading when it comes to stock market. It's treated as trade and returned as trade income. The response was kinda vague enough that it could be read a few different ways, but overall I don't think they answered my second question about asset segregation. So it's still not clear if everything falls under IT or not, once you're a trader. They gave this line on CGT there:

"Therefore CGT is payable on any long term stocks/ shares you sell"

It sounds almost as if they are saying that there is asset segregation? There is "long term" and "short term". This is a notion that is much clearer in countries like USA. They literally have a short term capital gain rate, which is basically IT rate and long term capital gain rate, that is CGT rate. And USA has a clear time frame. Short term is less than 1 year holding (iirc) and long term is more than 1 year holding. However, I've seen elsewhere mentioned that Ireland doesn't have such short term / long term notions at all, at very least, not clearly defined with time frames or anything like that.

This poses big problem of ambiguity, even IF revenue supports asset segregation for stock market dealer, how long is "long term" and how short is "short term"? They don't define. Stock market dealers can be holding their positions for a day, days, weeks, even months and still all with a same view of making "short term gains". I think USA designation is best where anything over 1 year holding is deemed investment - don't know any stock market dealer than holds anything for 1+ years as part of their "regular trading activity".

So after the ambiguous response from revenue, I asked follow up question, for which i'm waiting a response on to this day....

Tired of waiting on revenue i spoke to accountant, asked the same questions, even asked about separate broker accounts to "separate my assets" etc. The response I got from accountant that, I mentioned previously, seems to disambiguate and simplify this whole situation to the point that it seems plausible. To reiterate what accountant said:

"once you open income tax registration, you are trading. Tax is on you personally, not on your separate accounts. If you are trading all your incomes on shares , ETF etc will be subject to income tax doesn't matter how long you keep them."

So dissecting the above (and other voice messages talking about same so i wont transcribe them here) let's see if we can answer the questions:

Are you investor or trader (stock market dealer)?

That depends on 6 badges of a trade: size, frequency, volume of transactions, motive etc. (most grey area, but anyone I talked to, they viewed my short term dealing in stock options as a "trade" for purposes of Income Tax)

If you are a "trader" (stock market dealer), how is this know?

You open an income tax registration for your "trade" with revenue and file Form 11 each year on your trading profits. I have this open. Interestingly, I opened this so i can file dividend income on Form 11, anticipating the day when I make over 5k dividends, which necessitate income tax registration as mentioned earlier in this message.

The accountant further added:

"If you start trading you open income tax registration, and if you cease trading you close it down.. you either trading ... or you cease trading.. revenue will want to see at least a year break between trading and gain for cgt ..."

Once you're a trader, with an open income tax registration, how are other, "long term" stock market assets treated, how are ETFs treated do they fall under IT or CGT/DD?

All your assets are subject to IT, not matter what you hold, or how long. (allegedly).

So unlike USA where in a single broker account you can have a notion of "short" term and "long" term gains that are subject to IT and CGT respectively, Ireland seems to simplify the whole thing in that either everything is CGT/DD (i.e. you're "investor") or everything is IT (i.e. you're a "trader"), because Ireland has no notion of short term / long term gains like USA. Seemingly. That one message from revenue above casts some doubt with reference "Therefore CGT is payable on any long term stocks/ shares you sell" but even then, there's not definition anywhere to what "long term" is.

Reading further down this thread it just seems to get more off the rails.

Here's my two cents worth, and a question.

In day-trading when you make a realized profit or loss that is a taxable event and adding the fees you get total cost.

A. Taxable event is when you make a realized P&L

B. You pay 33% CGT on those events

Therefore, I presume I can I add up all the total fees, total costs, total P&L over a longer period of time containing many individual trades, and then enter that into information into CGT form? Keeping evidence of the transactions, IDs etc.. ? Is this true?

Thank you.

Further context: Crypto Trading