Capital vs income
The distinction deciding whether a profit is taxed as ordinary income or as a discountable capital gain.
Ordinary income — salary, rent, interest, dividends, business profit — is taxed in full at your marginal rate in the year received. Capital gains arise from disposing of an asset and can qualify for the 50% discount.
The line turns on intention and activity. Buying an asset to hold for long-term growth points to capital treatment; buying with the intention of resale at a profit, or trading frequently and systematically, points to income.
The consequences are substantial. The same $50,000 profit might be fully taxable as income or halved before tax as a discounted capital gain, depending entirely on how the activity is characterised.
Investor versus trader
A long-term holder selling after five years declares a discounted capital gain. Someone trading daily as a business declares the full profit as ordinary income with no discount available.
The bit people get wrong
You do not simply choose which treatment applies. The ATO assesses the facts — frequency, sophistication, intention, borrowing and record keeping — and being classified as a trader removes the CGT discount entirely.
Common questions
Am I an investor or a trader?
It depends on the scale, repetition and organisation of your activity. Occasional purchases held long term point to investing; systematic short-term buying and selling points to trading.
Is trader status ever better?
Sometimes. Traders can deduct losses against other income immediately, whereas investors can only offset capital losses against capital gains.
Does property flipping count as income?
Buying, renovating and reselling with a profit-making intention is frequently treated as ordinary income rather than a discountable capital gain.