Issue
Are share brokerage costs incurred by a share investor deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. Share brokerage costs incurred by a share investor are not deductible under section 8-1 of the ITAA 1997 as they are capital in nature.
Facts
The taxpayer is a share investor. The taxpayer is not a share trader.
The taxpayer purchased shares for the purpose of making a capital gain as well as for the purpose of earning dividends.
When purchasing the shares the taxpayer incurred brokerage costs.
Reasons for Decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.
In determining whether a deduction for share brokerage costs is allowed under section 8-1 of the ITAA 1997, it is necessary to examine the relationship between the expense incurred and the gaining of assessable income.
The taxpayer incurred brokerage costs in order to purchase shares. The shares are the capital assets from which income will be derived in the form of dividends.
The purchase of shares by a share investor is a capital transaction and any expenses directly related to the purchase of shares by a share investor, such as brokerage costs, will also be of a capital nature. Accordingly, no deduction is allowed for the brokerage costs under section 8-1 of the ITAA 1997. Note : The brokerage costs may be taken into account for the calculation of the cost base or reduced cost base of the shares for capital gains tax purposes when they are eventually sold.