ATO Interpretative Decision

ATO ID 2001/746 (Withdrawn)

Income Tax

• ATO ID 2001/746 is withdrawn as the factors to consider when carrying on a business are outlined extensively in TR 97/11.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is income derived from share and securities trading, business income and assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. The activities conducted by the taxpayer do not amount to the carrying on of a business, therefore any income derived is not assessable under section 6-5 of the ITAA 1997.

Facts

The taxpayer purchased and disposed of several market securities. Funding for the activity consisted of the taxpayer's own funds and a loan. The taxpayer does not operate to a business or trading plan, other than to hold the securities for the short to medium term. Minimal records are kept. The taxpayer spends a few hours per week on the activity. The primary source of the decision making in the buying and selling of securities, is the professional advice obtained from brokers' newsletters and e-mails. Some assistance is also sought from internet chat rooms, newspapers, and business programs on television and radio. No other research is conducted. On occasions the taxpayer sold securities quickly to avoid substantial losses. Some securities have not been sold because the taxpayer lost track of their market value. The taxpayer has conducted limited trading recently because of a downturn in the market and the absence of available funding. This has led to certain securities being retained, to avoid further losses being incurred.

Reasons for Decision

Whether the trading activities of the taxpayer amounts to the carrying on a business is depended on the facts provided (FC of T v. Radnor Pty Ltd (1991) 22 ATR 344; 91 ATC 4689; (1991) 102 ALR 187). A determination is made on the general impression gained from various indicators of carrying on a business and the individual circumstances of the taxpayer (Martin v. FC of T (1952) 10 ATD 37) and discussed by the Commissioner in Taxation Ruling TR 97/11.

The circumstances of the taxpayer are similar to those in Case X86 90 ATC 621; (1990) 21 ATR 3747 where the activity was not conducted in a business like manner. The activity was conducted in a similar manner to that of an investor or speculator in that:

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the taxpayer predominantly relied on professional advice to make decisions about the investments;

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limited time was spent on the activity;

•

the method of operation is simple;

•

the taxpayer does not have a trading plan;

•

the taxpayer does not have a contingency plan in place to absorb market downturns;

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the taxpayer has not demonstrated that the necessary source of funding required for continuing the activity for an indefinite period can be maintain;

•

the taxpayer keeps limited records; and

•

the extent of the activities is such that a home office is not maintained.

Consequently as the activity does not amount to carrying on of a business, income derived is not assessable under section 6-5 of the ITAA 1997.

It should be noted that the gains and losses resulting from the activity may be subject to the capital gains tax provisions of Part 3-1 of the ITAA 1997.

Legislative References:
Income Tax Assessment Act 1997
   section 6-5
   Chapter 3, Part 3-1

Case References:
FC of T v. Radnor Pty Ltd
   (1991) 22 ATR 344
   91 ATC 4689
   (1991) 102 ALR 187

Related Public Rulings (including Determinations)
TR 97/11

Related ATO Interpretative Decisions
ATO ID 2001/745

Keywords
Hobby vs business
Shares
Business Income
Carrying on a Business

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  30 November 2001
Date reviewed:  26 May 2014

ISSN: 1445-2782