Carrying on a business of share trading

A 'business' for tax purposes includes 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'. This definition would include a business of share trading.

The question of whether a person is a share trader or a shareholder is determined in each individual case. This is done by considering the following factors that have been used in court cases:

  1. the nature of the activities, particularly whether they have the purpose of profit making
  2. the repetition, volume and regularity of the activities, and the similarity to other businesses in your industry
  3. the keeping of books of accounts and records of trading stock, business premises, licences or qualifications, a registered business name and an Australian business number
  4. the volume of the operations
  5. the amount of capital employed.

1. Nature of activity and purpose of profit making

The intention to make a profit is not, on its own, sufficient to establish that a business is being carried on.

A share trader is someone who carries out business activities for the purpose of earning income from buying and selling shares.

Shares may be held for either investment or trading purposes, and profits on sale are earned in either case. A person who invests in shares as a shareholder (rather than a share trader) does so with the intention of earning income from dividends and receipts, but is not carrying on business activities.

It is necessary for you to consider not only your intention to make a profit, but also the facts of your situation. This would include details of how the activity has actually been carried out or a business plan of how the activities will be conducted.

A business plan might show, for example:

  • an analysis of each potential investment
  • analysis of the current market and various segments of the market
  • research to show when or where a profit may arise
  • the basis of decisions by you as to when to hold or to sell shares.
    Last modified: 30 Jan 2013QC 16548