Alison is an electrical engineer. After seeing a television program, she decides to become involved in share trading activities.
Alison sets up an office in one of the rooms in her house. She has a computer and access to the internet.
She has $100,000 of her own funds available to purchase shares and, in addition, she has access to a $50,000 borrowing facility through her bank.
Alison conducts daily analysis and assessment of developments in equity markets. The resources she uses include financial newspapers, investment magazines and stock market reports. Her objective is to identify stocks that will increase in value in the short term to enable her to sell at a profit after holding them for a brief period.
In the year ended 30 June 2008, Alison conducted 60 share transactions: 35 buying and 25 selling. The average buying transaction involved 500 shares and the average cost was $1,000. The average selling transaction involved 750 shares and the average selling price was $1,800. All the transactions were conducted through stockbroking facilities on the internet. The average time that Alison held shares before selling them was twelve weeks. Alison's activities resulted in a loss of $5,000 after expenses.
Alison's activities show all the factors that would be expected from a person carrying on a business. Her share trading operation demonstrates a profit making intention even though a loss has resulted. Alison's activities are regular and repetitive, and they are organised in a business-like manner. The volume of shares turned over is high and she has injected a large amount of capital into the operation.
Trading or business plan
A trading or business plan should include some or all of the following aspects:
an analysis of each potential investment
analysis of the current market and various segments of the market
research of when or where a profit may arise
the basis of decisions made as to when to hold or sell shares.
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