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Edited version of private ruling
Authorisation Number: 1011582399534
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Ruling
Subject: Am I in business as a share trader or am I a share holder?
Are you considered to be in business as a share trader?
No.
Relevant facts and circumstances
You are currently employed on a part-time basis.
To make additional income, you hold shares.
Your share portfolio is administered on e-trade.
You do some basic research into companies and you have established a shortlist of companies that you may invest in.
You can hold your shares from anywhere from three months to a few years, depending on how well the shares are trading.
You do not consider that you are in business. You want to invest in shares and watch your money grow.
For the income year you sold a number of parcels of shares that you held for less then 12 months. Over the parcels of shares, you made a net capital gain.
You also had franked dividends and franking credits.
You state that your share trading habits may change in the future.
Reasons for decision
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 disposal are earned in either case. A person who invests in shares as a share holder (rather than a share trader) does so with the intention of earning income from dividends and receipts, but is not carrying on business activities.
A person is a share trader or share holder is determined in each individual case. This is done by considering the following factors that have been used in court cases:
· the nature of the activities, particularly whether have the purpose of profit making
· the repetition, volume and regularity of the activities, the similarity to other businesses in your industry.
Share trader
The Tax Office considers each case on its individual features; a share trader is a person who carries out business activities for the purpose of earning income from buy and selling shares. The person's position may be briefly summarised as:
· receipts from the disposal of shares constitutes income
· purchase of shares would be regarded as trading stock
· the nature, regularity, volume and repetition of the share activity are consistent with those of a share trading business
· costs incurred in buying or selling shares are an allowable deduction in the year in which they are incurred, and
· dividends and other similar receipts are included in assessable income.
Share holder
A share holder is a person who holds shares for the purpose of earning income from dividends with similar receipts. This person's position may be briefly summaries as:
· the cost of purchase of shares is not allowable deduction, but a capital cost
· receipts from the disposal of shares are not assessable income however, any net profit is subject to capital gains tax (CGT)
· a new loss from the disposal of shares may not be offset against income from other sources, but may be carried forward to offset against future capital gains from the disposal of shares
· costs incurred in buying or selling shares are not an allowable deduction in the year in which they are incurred, but are taken into account in determining the amount of capital gain
· dividends and other similar receipts are included in assessable income, and
· costs (such as interest on borrowed money) incurred in earning dividend income are an allowable deduction at the time they are incurred.
After considering the above factors and your specific circumstances, it is considered that you are not carrying on a business as a share trader. Your activities lacked significant repetition or regularity.
Although you carry out some basic research, it is considered that the activities do not amount to that of a business. You have not shown that you have a sophisticated share trading technique or a business contingency plan to cope with falling markets. You have not established a proper pattern of trading in shares and your share trading was not done in a systematic manner.
Note: Generally, if you are not in business, you do not require an Australian business number (ABN).
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